Rising Rupee Caps Yellow Metal's Local Ascent.

MUMBAI: Gold in the overseas market made a fresh high of around $1,283 an ounce on Friday, but its price in rupees was capped due to a 31 paise gain in the local unit versus the dollar.

Rising prices have led to a slowdown in sales ahead of the festive and wedding season that commences next month, jewellers said.

Gold of 99.5% purity in Mumbai closed atRs 1,9336.45 per 10 gm,Rs 40 shy of its all-time high on Thursday. The rupee ended up at 45.84 to the dollar compared with 46.15/$ on Thursday. A fall in the dollar makes assets denominated in it cheaper for holders of other currencies. Since, India imports 97% of its gold consumption annually, a stronger rupee makes imports cheaper.

“A stronger rupee has made gold cheaper in rupee terms, however prices still continue to remain high,” said Joy Alukkas, chairman of Joyalukkas group, which has 21 outlets located mainly in South Indian states of Kerala and Tamil Nadu. “The high prices have reduced demand across our stores by 25%.”

According to Kumar Jain, a retailer in Zaveri Bazaar, the country’s largest wholesale gold market, high prices have seen people exchanging old jewellery for new by only paying for making charges. “This trend has been carrying on for the past couple of months. We normally buy 3-4 kgs of gold daily, but are currently purchasing just 300 gms.”

Industry body World Gold Council (WGC) said local demand for jewellery, bars and coins in the first half of 2010 grew 94% from a year ago to 365 tonnes even though the average price increased 22% year-on-year to Rs 17,592.65 per 10 gm.

However, leading jewellery experts such as Umesh N Shah, vice-president, Shrenuj & Co (domestic jewellery division), have said that demand is bound to be impacted if prices continue their upward trend. “Demand is bound to be hit and we may see grammage falling if prices keep up their tempo.”

Source : economictimes.indiatimes.com