Slump in gold prices triggers sales

By Lalin Fernandopulle

The drop in gold prices is a boon to gold merchants but a bane to those in the mortgage business due to the loss incurred with the sharp drop in the value of the precious metal.

Gold merchants in Sea Street, said that sales had shot up with the slump in gold prices which was triggered by the appreciation of the US dollar.

The price of a sovereign in the world market dropped to around US$ 1,200 from around US$ 1,800 last year.

The price of a gold sovereign dropped sharply last month boosting sales of small inventory holders across the country. The price of a gold sovereign came down by around Rs.12,000 from around Rs. 58,000 per sovereign last year. Gold merchants said the price of gold may drop further with the value of the dollar rising.

Chairman, Pattakannus (Pvt) Ltd, S.A. Thiagarajah said that when gold prices are down it certainly benefits customers.

We have seen a drop of almost Rs. 12,000 per sovereign of gold in Sri Lanka. Sri Lanka is a small player of gold investments. Our prices are now on par with international prices.Now that US has created many jobs the US dollar has strengthened.

There is always an inverse reaction. When the dollar weakens the value of gold appreciates.

He said that the production of gold has not been reduced and added that it is the drop in prices that has halted large scale investors to delay buying gold.

It is also predicted that the price may come down to $ 1,200 an ounce.

In Sri Lanka traditions keeps the gold trade running. The craze for gold by women has lasted over 2,000 years. When our economy was low about an year ago many grabbed the opportunity of the high price of gold to sell their stocks and settle their loans which helped them to save the payment of interest.

Thiagarajah said that gold prices will go up again. The upward trend has been significant during the past 12 years. There has been sudden drops in price but not to this extent. In comparison to other investments a fall in prices was predicted.

It is a good time for small- time investors to buy gold bars available at banks and make solid jewellery which can be turned into cash faster than any other investments in assets. The price of gold gains between three to five percent annually which lures people to invest in gold jewellery.

Edirisinghe Trust Investments sources said that the price of 22-carat gold dropped to Rs. 52,000 from Rs. 59,700 and the price of 24-carat gold dropped to Rs. 46,200 from Rs. 46,400. He said that sales have improved due to the drop in prices.

An official at the Wattala branch of Swarna Mahal Jewellers said that sales had increased with the drop in prices. The price of a gold sovereign last week was Rs. 45,000. Bankers said that the drop in gold prices will adversely affect the banking industry as the number of nonperforming loans in the pawning sector could rise.

A report of a rating agency said that the substantial expansion of pawning loans (gold-backed loans) by Sri Lankan banks as gold prices soared over the past few years has exposed the banking industry to the risk of high credit costs as gold prices drop. Many who had mortgaged gold are not redeeming it as the prices of gold had dropped which enabled them to buy jewellery at a low price. It is those that have sentimental and emotional value which are being redeemed, bank sources said.