Can discounts win back gold buyers?

With gold prices soaring to unimaginable levels, jewellery shops in India are offering attractive discounts to customers in a bid to lure them back to the shops.

From Kochi to Mumbai to Delhi, several jewellery shops have announced several schemes to win back the customers, who have been shying away from buying gold for the past few months due to high prices.

Gold prices had crossed Rs 18,000 per 10 gm in the recent past and the prices have not come down since then.

So, gold retailers are offering a discount of up to Rs 220 per 10 gram on landed cost of gold to boost sales.

The metal was sold at Rs 18,850 per 10 gram, against the landed cost of Rs 19,070. The spot gold was sold below the landed cost due to the weak demand for the metal.

Last week, gold rose 2.45 per cent to a record high of $1,260 an oz in the global market, as the sovereign debt crisis in Europe increased gold's status as a safe haven investment.

However, the domestic market was somewhat unaffected, as the rise in the value of the rupee kept gold weak, compared to the global rise. The rupee closed the week at 46.17 against the dollar, after hitting a high of 46.94 during intra-week trading.

GFMS Ltd, the London-based independent research company, had earlier forecast that gold would hit $1,300 an oz, before taking a downward leap. Fuelled by Europe's fiscal woes, low interest rates and concerns over the stability of paper currencies, the precious metal has risen nearly 15 per cent in the last six-seven months.

The discount is a usual phenomenon which retailers and primarily jewellers offer to attract sales when consumers abstain from fresh buying due to some factors. This time, too, gold jewellers used the weapon as physical buyers remain totally absent.

Daily sales have declined by 90 per cent in several shops in the recent past. Since wedding season, the largest buying opportunity in India, is already over and the next festive demand will emerge only in September-October, gold sales are expected to remain weak for the time being.

Gold sales are passing through a typical phase, where buyers are waiting for a correction to pass on fresh orders, while sellers, in contrast, expect prices to surpass the psychological barrier of Rs 20,000 per 10 gram to start profit-booking.