Drop in Gold Prices Good News for Diwali Buyers

Indian demand picking up ahead of the Festival of Lights...

LAST MONTH'S fall in Gold Prices has presented a good opportunity for long-term investors to accumulate the precious metal ahead of the Indian festival of lights, Diwali, next week, writes MineWeb's Shivom Seth in Mumbai.

The festive season is in full swing in India and bookings for gold jeweler and smaller denomination coins has picked up phenomenally.

The local price of the yellow metal, which collapsed in the last week of September, has recovered and Indian spot Gold Prices are now hovering around $553.20 per ten grams ($1780/ounce). Traders insist fresh buying by jewelers to meet the ongoing festival demand is likely to further fuel demand and ensure higher prices.

"In the last week of September, the price of gold collapsed to a six-and-a-half week low of $511.92 per 10 grams ($1645/ounce), its sharpest weekly drop since March 2009. That was the time word of mouth got around and investors started flocking to jewelry stores, with many commencing booking online for their favorite piece of jewelry,'' says Shyamsunderbhai Saxena, retail jeweler in Mumbai.

For many who had missed out on the previous rally, this was one golden chance they did not want to miss out on. Broking firm MustOwn Securities CEO Ramesh Shinde said many investors had logged on to start accumulating gold at the new low, "since there is a widespread belief that long-term levels of the yellow metal could well rise to around $666.58 per 10 gram ($2140/ounce).''

Bombay Bullion Association President Prithviraj Kothari also underscored the expected rise. "We expect Gold Prices to shoot up to $660 to $670 per 10 gram by Diwali due to local demand,'' he said. Gold is still considered the best bet for hedging as the global economic crisis continues.

Kothari noted that retail investors should start Buying Gold by adopting a staggered approach, which helps to average out the cost while accumulating gold over a period of time.

For several years, India has been a huge gold consumer, but the yellow metal has climbed up from fifth place in 2007-08 to become the country's biggest import after crude. And if the current trend continues, gold imports could exceed 1,000 tonnes in 2011.

Brokerage firm Maya One has said in a note to its clients that gold will remain range-bound and is waiting for cues from the European markets. Maneesh Jog, senior bullion analyst at the firm said, "Gold Prices witnessed extreme volatility in September, following the deepening European debt crisis. The metal touched a high of $1,923.7 and a low of $1,535 per ounce in September. And that was the time many Indians decided to buy and hold on to the precious metal.''

He added that the correction effectively propelled domestic jewelry fabrication demand for the onset of the festive and wedding season. India imported 553 tonnes of gold for the January-June period, he added.

Ramesh Jagawat, director of Nakoda Bullion, however, added a note of caution. "Of late, we have seen huge fluctuations in Gold Prices, and so the market is now cautious. Over the last two months, Gold Prices have rallied and then crashed. Though it is going up now, for many investors, it is a very confusing period. We advise investors to understand the risk involved while dealing with bullion,'' he said. The director added that demand from the investing community would be muted if volatility continues for long.

Get the safest gold at the lowest prices with BullionVault...