Suresh Hundia is the president of Bombay Bullion Association and the promoter and chairman of Hundia Exports.
In the last one-and-a-half decade, Mr Hundia transformed his company into one of the top 10 importers of bullion in India.
He boosted the company’s exports not only in terms of turnover and profitability but also the geographical spread.
Betting big on the yellow metal, Mr Hundia wants the retail investors to become rich by investing wisely in gold and thinks that the investors should book profits at current levels.
"If they have bought gold at lower prices, they should sell it at the level of Rs 17,000 per 10 gram. They would get an opportunity to buy gold at Rs 15,000 to 15,500 per 10 gram in the near future," Mr Hundia advises.
Excerpts from an interview with YOGESH MEHENDALE.
Gold is scaling new peaks. What are the reasons behind the surge in gold prices?
The weakening dollar is the prime reason behind the surge in gold prices that was witnessed in the last few months. Since then, gold prices have risen by more than 25 per cent in the last one year and are nearing the Rs 17,000-mark.
In the backdrop of global financial crisis, investors have started buying gold for hedging purposes.
Globally, the hedge funds, mutual funds, central banks and the gold exchange traded funds (ETFs) are investing in gold as a hedge against the dollar.
The latest example is of the Reserve Bank of India purchasing 200 tonnes of gold from the IMF for $6.1 billion. India has forex reserves of about $300 billion while China has about $800 billion. If the dollar is on the decline it would be wise to convert the dollar into a more reliable investment source like gold and that is why these and some other countries are investing in gold, resulting in the upward movement of gold prices.
Does the change in gold demand-supply scenario have any role in the price movement?
Worldwide, the gold production is stable at 2,600 tonnes per annum.
There was no decline in the supply of the yellow metal to push its price northwards. Interestingly, out of 2,600-tonne of annual gold production, the actual end users have bought about 1,000 tonnes and the global ETFs bought 1,200 tonnes and the rest was bought by countries like China, India and the UAE.
Has the decline in the physical demand of gold helped old scrap gold to come in circulation?
Yes, the decline in physical demand for gold not only brought the old scrap in circulation but it also has helped the imitation jewellery segment to grow. Two years ago, the share of old scrap in circulation was about 50 tonnes a year. This share has now moved up to about 200 tonnes per year mainly because of the high gold prices.
This trend has been observed in the marriage season as well.
Customers are using 50 per cent of their old jewellery and purchasing the rest of the 50 per cent in the form of new gold. Earlier, the share of old jewellery in marriages was 20 to 25 per cent at the most.
Another important result is the increasing popularity of imitation jewellery. About a year ago, imitation jewellery was not a significant part of the industry.
Though, we can’t measure the imitation jewellery market in terms of the sales turnover vis-a-vis the gold jewellery market, it has started capturing a big share in the market.
We can get some idea of the changing trend by looking at the number of imitation jewellery outlets popped in the cities.
In the past couple of years, about 25 per cent of the gold jewellery shops have closed down and replaced by the imitation jewellery shops.
What do you advise retail gold investors?
I would say that the retail investors should stay away from the current market. If they have already invested in the gold at lower prices, they should offload the investments at the level of Rs 17,000 per 10 gram and wait for a buying opportunity at a level of Rs 15,000 to 15,500 per 10 grams. As the world economy improves and the dollar gets strengthened, the investments in gold will start getting diverted to other asset classes. Then they would get an opportunity to buy the gold at the level of Rs 15,000 to Rs 15,500.We believe that the gold prices won’t move below the level of Rs 15,000 to 15,500. While investing in gold, investors should invest in coins and not in the jewellery form, as due to the making charges and other losses, the investment value decreases by 25 per cent.
Silver has also appreciated in the past one year. How do you compare the investment in silver as against the investment in gold?
Apart from the jewellery, silver has its usefulness in industrial products, electrical products, technical instruments, etc. Though the demand for the silver in coins, statues and utensils has declined, its demand in industrial and other products is increasing. While silver has always given more returns than the gold, the latter has always remained as an attraction because of the Indian tradition of wearing gold jewellery. But the high cost of silver also has impacted imports this year. In 2008, the silver imports were about 3,200 tonnes, while this year, the imports are only 700 tonnes.