Sherpa Hossainy's Blog

Tumbling taka hurts gold business

Posted in Bangladesh, Business, Dhaka, Economy, Industries by Sherpa Hossainy on January 24, 2012

Published in The Independent on 19 January 2012

Read the article in Independent website

Digital print version

The country’s gold industry is going through a lean patch as flagging taka against dollar forces gold traders to push the item prices up, consequently driving the buyers away.

Gold is already trading higher in the local market than the global level, but the perpetual decline of taka is pushing the gold traders into a quandary as customers are averse to buying the precious metal at a higher rate.

“Gold prices should not be this high. But as taka gets weaker we are paying more for gold purchases and this is forcing us to hike the prices,” said Dewan Aminul Islam Shahin, general secretary of Bangladesh Jewellers Samity (BJS).

According to Bangladesh Bank, in the last one year alone taka devalued 15.43 per cent against the greenback. The dollar was trading on Wednesday at Tk 84.05 whereas it was around Tk 69 a year ago.

“It wouldn’t matter if the international gold price remained constant. Now we are paying Tk 12-14 more for every dollar than what we paid a year ago,” said Shahin.

After the historic rise of gold in the international market in mid-August last year, amid the Eurozone debt crisis, situation eased at the year-end. Gold crossed $1,800 per ounce [1 ounce = 31.1034768 grams] in mid-August, while in December it came down to $1,540 per ounce. However, since January gold prices started to shoot up again and on Tuesday gold traded at $1,630 per ounce.

In the course of this rising trend, BJS, the country’s largest gold traders’ association, is set to take the gold prices up again. The 35-member executive committee of BJS will sit  next Tuesday to decide the hike. “If majority of our members opine for a price increase we will implement it immediately,” the BJS general secretary said.

The latest price hike happened only last Saturday (January 14) where the price of 22-carat gold was increased by Tk 1,513 per “bhori” (local unit of gold measurement, 1 bhori = 11.664 grams). The prices of 18-carat, 21-carat and traditional gold were increased by Tk 1,222, Tk 1,397 and Tk 1,280 per “bhori” respectively.

After the hike, the prices of gold stood at: 22-carat Tk 56,454 per “bhori”, 21-carat Tk 53,888, 18-carat Tk 46,189, and traditional gold Tk 35,109 per “bhori”, according to BJS.

In India, gold prices continued to move up to new highs well beyond September and into December 2011 mainly because the rupee depreciated sharply against the dollar. In early December, spot gold in Delhi market hit a record high of Rs 29,540 per 10 gram. The rupee had moved down to around Rs 54 per $1 in December.

According to the World Gold Council, sharp volatility in gold prices and inflation do impact discretionary spending.

“When the gold price crossed the Tk 25,000 mark we started losing business as the customer base shrank,” Shahin said.

Very few customers now buy gold, and this is also confined to wedding occasions. No one wants to buy gold now unless it is mandatory, he said.

However, the traditional gold buying for wedding ceremonies is also hit by the rising prices, especially the middle-class is suffering the most. “A few years back, you could buy a whole set of jewelleries at Tk 50,000. Now you have to spend six times more just to get a bare minimum of five ‘bhoris’,” Shahin said.

The reluctant customer base is also forcing small jewellers to shut down businesses even amid the “wedding season”, which otherwise usually buoys the market. Dilip Roy, president of BJS, said, “20 per cent of the small shops have closed down now and the overall business is halved.”

Roy believes formulation of a gold policy can make this wobbling situation change. “If there was a gold policy, we would be able to buy gold from Bangladesh Bank. Then the price fluctuation in the international market would have a much lower impact,” he said.

In April, the ministry of commerce formed an inter-ministerial committee after receiving a letter from the BJS seeking formulation of a gold policy in three months. The committee then decided to make a jewellery industry policy, under the supervision of the industries ministry, immediately after formulation of the import policy, which will allow Bangladesh’s jewellery manufacturers to purchase gold through proper channels.

However, the progress following the formation of the committee has been sluggish, making matters much worse, Roy lamented.

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