Bullion traders seem to have taken seriously the finance ministry's efforts to discourage gold consumption as it was putting pressure on the current account deficit. If not investments, at least trading in bullion has shrunk in the last couple of months.
Average gold daily turnover on MCX, the market leader in trading in bullion, has been on the decline since January, as prices have remained weak and volatile.
In January, the average daily turnover of gold stood at Rs 1,971 crore, which fell 14 per cent to Rs 1,693 crore in March. The average turnover of gold fell in February as well to Rs 1,833 crore. In early days of April, the situation is not much different.
The price of gold since the start of the year has witnessed a 3.4 per cent fall to Rs 29,300 per 10 gm. However, whenever gold prices fall in the international markets, prices in India may not fall to that extent due to rupee depreciation. Normally, in the international markets, gold prices behave inversely to the US dollar. If the dollar rises, gold falls, but when the dollar rises, the rupee weakens. This was confusing traders to take directional calls and they preferred to reduce trading.
In the end of January, government increased the import duty on gold from four to six per cent, which also caused traders and investors to stay away from the market.
"Traders stay away from the market when prices move downwards," said Jayant Manglik, president-retail and distribution, Religare Securities.
Echoing the same, Naveen Mathur, associate director, commodities and currencies, said: "The movement in gold is very tight, which has caused traders to stay away from the market. Also, there has been no trigger for the movement of the commodity, which has also caused investors to stay away."
Added Prithviraj Kothari, a Mumbai-based bullion trader: "There is very little demand in the market for gold due to subdued prices, which has impacted the volumes on MCX. Volumes will go up only post monsoon if the rains are good."