Gold Prices on the Street
October 4, 2011 5 Comments
The recent fall in gold prices in the international markets made news headlines in India.The MCX mirrored the COMEX but things were a little different on the street.Here is a story from this week’s Wealth Times.Do read it for an idea of how ETFs react vis-a vis bullion and for how to try and get a discount out of your jeweller.
Is the fall in gold prices genuine
When gold prices fell by more than 2,500 from 28,210 per 10 gm on 21 September to 25,685 on 29 September,people hailed the good news.But much to their disappointment,they found that it wasn’t as cheap as it was touted to be.While the yellow metal was trading at the 25,000 mark,most jewellers charged 27,500 per 10 gm,even 28,200 at some stores.When asked about the difference in the rates,jewellery store managers said that the rates quoted in the media were averaged out,so they were not applicable.
The savings for consumers were low mostly because it seemed that an artificial supply shortage had been created.Wholesalers had stocked gold in anticipation of an improved demand during the festive season.They also expected that money would flow into the bullion as the global equity markets looked damp.However,prices came down and they decided not to sell, says Vijay Bhambwani,chief executive officer at BSPLindia.com.When anyone enquired about the lower rates,the wholesalers said they were out of stock.The price decline isnt beneficial to traders,especially in the silver segment,where there are no ETFs, he adds.
In the current market,the pricing is determined by the seller.So,if gold was trading on the MCX at 26,500 per 10 gm,the seller would give it to you for 28,500,and not below this level, adds Bhambwani.
Jewellers didnt have much option and were paying a premium to purchase gold.Bachhraj Bamalwa,chairman of All India Gems and Jewellery Federation,says,The bullion dealers had purchased at a high price.When the prices fell,the demand suddenly increased.For the jewellers,the prices were not reduced as much as the fall in the market price.Even when the prices declined by 2,500 per 10 gm,jewellers were paying 250-300 as premium per 10 gram for purchasing raw gold.
Besides,the gold that had been converted to jewellery earlier came at a still steeper rate.Anuj Rakyan,managing director at Ananya Jewels,says,The jewellery that has already been made used the gold that was purchased at higher rates.That cost is intrinsic and we need to sell the jewellery considering that price.So,the fall may not translate into saving even if you are purchasing jewellery now.
Another aspect that leads to a variance in the price of gold is the place where you buy it from.On the day that the Bombay Bullion Association was quoting 26,150 per 10 gm,a renowned dealer at Mumbai’s Zaveri Bazaar was asking for 27,000,exclusive of VAT (1%).At the same time,Gold BeES (now Goldman Sachs Gold ETF),a gold exchange-traded fund on the National Stock Exchange was quoting 25,522 per 10 gm.
Bhambwani suggests,You should enquire at three or four different places before you buy gold. Also,check the caratage and then compare the price says,Rajiv Popley,director of Popley group,which runs a retail chain.Does this mean higher savings for consumers when the jewellers who purchase gold now sell at higher,market-linked rates later Yes,this is likely.As Rakyan says,When prices rise and jewellery has been made at lower rates,jewellers waive the making charges.Its the margin difference that allows for such as waiver.