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Tuesday, 2 July, 2002, 12:37 GMT 13:37 UK
Indians cash in on gold price surge
People selling off their old jewellery in exchange for new at a jeweller's in Zaveri Bazaar
Jewellery shops are proving attractive to sellers as well as buyers

In India, the world's largest consumer of gold, imports of the precious metal have taken a beating following the recent spurt in international gold prices.

According to Mukul Sonawala, vice-president of the Bombay bullion exchange, gold traders in India are increasingly buying locally recycled rather than imported gold, as the price gap between the two has widened.

Gold recycled in India, mainly from old jewellery, is currently cheaper by about 900 rupees ($18) a bar of 116.64 grammes than the imported metal.

Normally this difference is not more than 2-300 rupees.

'Status symbol'

Last year India imported about 825 tonnes of gold - nearly 20% of the global gold output.

This year gold imports are already down by nearly half, according to Hiroo Mirchandani, jewellery manager (India), World Gold Council.

Diamond jewellery
Diamonds are now an Indian girl's best friend

"Indians love gold and the yellow metal is associated with virtually every auspicious occasion - be it wedding, child birth, new home or anything else," Ms Mirchandani said.

"It is both an instrument of adornment and investment.

"In rural India its also a big status symbol where people measure wealth in terms of gold holdings of individuals."

Customers switch

Ms Mirchandani admitted that the recent hike in gold prices had dampened demand for new gold in India.

Consumers were unlikely to start buying again unless the gold prices become less volatile and weaken a little, she added.

There was also some shift in the preference of Indian consumers for gold over other precious metals and gems.

Samrat Zaveri, managing director of a new jewellery store, Trendsmith, said people were no longer just fixed on buying gold ornaments.

"They are checking out diamond and white metal jewellery as well and liking it," Mr Zaveri said.

Gold rush

A jeweller in Bombay's bullion market, Deepak Zaveri, told the BBC that consumers were putting off buying gold unless there was unquestionable reason to purchase, such as a wedding in the family.

Mukul Sonawala, vice-president of the Bombay bullion exchange,
Mukul Sonawala: "Prices too high"

"Even in that case, most of the consumers will try and sell old gold and exchange it for new jewellery," he said.

A visit to the Zaveri Bazaar in Bombay, the country's biggest bullion and jewellery market, shows how there is a different kind of a gold rush this year in India.

Perhaps for the first time in several decades, Indians are actually queuing up outside jewellery showrooms - not to buy new jewellery but to sell old ornaments.

According to Mr Sonawala, Indians have been selling about 15-20 tonnes of gold every month for the last three to four months.

Gold prices surged to a high of $330 per troy ounce last week from the $270-80 levels seen a few months ago.

Reversal threat

Mr Sonawala said that the rise in gold prices reflected as much speculative fervour as concerns over international factors, such as the slowdown in the US economy and threat of war in the Middle East, which play to the metal's status as a "safe haven".

"But unless the prices come down to more realistic levels, Indians will not be buying gold," he said.

"And that will be bad news for the global gold industry.

"In fact there could well be a reverse cycle with Indians selling gold in a big way if prices continue to move up."

Currently the sale of gold by Indians represented "only a trickle".

"But if the prices continue to move up it could turn into an avalanche."

See also:

27 Jun 02 | South Asia
22 May 02 | Business
26 Feb 02 | Business
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