Tags: India | gold | demand | Diwali

A Dimmer Festival of Lights

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Friday, 15 Nov 2013 07:07 AM Current | Bio | Archive

The five-day Hindu festival of Diwali, also known as the festival of lights, began on Nov. 3. Lamps are lit to symbolize the triumph of good over evil, light over darkness and knowledge over ignorance. The first day of the festival is Dhanteras, which honors Lakshmi, the goddess of wealth, and is an especially auspicious occasion to buy and wear gold and silver.

Diwali is a big national holiday in India and contributes to bigger gold sales in the biggest gold market in the world. Indians value gold as a portable storehouse of wealth, among many other reasons. And more gold buyers are created every day because many Indians are lifted from lower to middle class by India's booming economy. But India has very few gold deposits, so it has to import almost all of its gold.

Record imports to meet record demand have caused such a severe trade imbalance that it has become a serious threat to the value of the rupee. As a result, the Indian government has taken increasingly drastic measures to artificially restrict gold imports. The numbers are out and their efforts have apparently worked.

This year's gold sales during Diwali sunk by 40 percent compared with last year. In spite of relatively low gold prices being attractive to potential buyers, dwindling supplies of gold were priced at a premium of $100 or more above the spot price of gold. Although gold was beginning to be smuggled into the country illegally in response to the import restrictions, those channels were not yet delivering significant supply to impact prices.

As a result, wealthy Indians turned to the relative bargain of diamonds, while middle-class Indians' demand for silver surged. The only bright spot for gold was strong sales of gold jewelry for the upcoming wedding season. High prices or not, gold is a must when two people get married in India.

What impact does this all have on gold? Whenever a government artificially restricts a market, market forces will eventually overcome the restriction.

Yes, gold supplies in India might be down, but record demand is not. Expect illegal imports of gold to eventually increase supply and do it more cost effectively. In the meantime, Indians will temporarily make due with other tangible assets like diamonds and silver. In addition, while gold recycling has fallen worldwide, it has increase 500 percent in India.

And when the Indian government eventually lifts the restrictions of gold imports, expect demand and sales to skyrocket.

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Diwali is a big national holiday in India and contributes to bigger gold sales in the biggest gold market in the world. Indians value gold as a portable storehouse of wealth, among many other reasons.
India,gold,demand,Diwali
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2013-07-15
Friday, 15 Nov 2013 07:07 AM
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