Gold business slow as Indians in Kuwait postpone purchase
KUWAIT: The price of gold in Kuwait is on an upward swing, climbing to over KD 14 per gram from around KD 13.500 in a couple of weeks. The Arab Times was talking to gold merchants in Kuwait Tuesday to find out about local demand for gold, when gold prices are touching record levels internationally. In Kuwait, gold broke the all time record two months ago hitting KD 16.500 per gram, the jewelers said.
Asked how the climbing rate of gold has affected sales, one merchant noted people purchase gold whenever its price increases expecting a further hike in the short term. “So, we are now witnessing an increase in the sale of gold.”
There were some gold merchants who differed with this view. They felt that the fluctuation in gold price is harming their businesses. A jeweler, Mohammed Izzat, said, “We want the price of gold to decrease so that the sales will pick up in the local market.”
He complained that business has fallen by 15 percent because of the drastic rise in the price of gold.
Some Indian merchants also shared similar sentiments, saying business has slackened a little in the recent past. “This is owing to the low rupee rate, and people feel that it’s more profitable to repatriate money and capitalize on the exchange rate difference, rather than invest in gold.”
The exchange rate of Kuwaiti dinar against the INR is close to Rs 200.
What the expatriate Indians don’t realize is that the cost of gold in India is at an all time high, way above the rates in Kuwait, they added. “This actually neutralizes the benefits of a low rupee rate.”
Asked if the recent restrictions by Indian authorities on the amount of gold one can take to India have affected local business, the merchants answered in the negative.
“We know many people who are taking gold to India and they have had no problem. In fact the restriction has been in place for a long time, but it’s in the news only now.”
The merchants complained that the restrictions are a result of lobbying by Indian gold merchants fearful of losing business to foreign merchants.
About the causes for the hike in gold prices, the jewelers said historically, gold has performed well whenever dollar has fallen. “The dollar’s value has been eroding against other currencies over the past two-and-half years.
“Secondly, euro is also not doing terribly well. This has created a situation where investors are uncomfortable with any fiat currency, and therefore gold is the natural beneficiary.”
The jewelers also named low interest rates as a cause for the gold’s climbing value. “In the last many years, interest rates have been at historically low levels.”
Explaining the gold-price mechanism in terms of interest rates, the merchants noted that when the interest rates are high, there is greater return from owning paper assets.
“In an environment of high interest rates, there is an opportunity cost to holding a commodity like gold. Moreover, holding to gold produces no income. When the rates are low, the opportunity cost of holding to gold is very minimal, and investors prefer gold.”
By: Valiya S. Sajjad
Arab Times Staff