The Georgian Vicious-Gold-Circle
24 April, 2014
The Georgian Vicious-Gold-Circle
While gold price goes down at the global markets it crawls up Georgian market. As a matter of fact, Tbilisi Gold Exchange more-less pursues the international gold market trends. But beyond the TGX this trend has no impact unless it is going up. Petty traders involved in sale of gold jewelry, pawn-shops or financial institutions requiring for gold items as the loans back-up increase prices instantly if they go high at the global market while react on drops very slowly
if ever. Some analysts believe this bespeaks of the monopoly.
While Westpac Banking Group analysts predict the gold price to go down to USD 1175 per ounce by this coming July and fall as low as USD 1090 by September Georgian gold market goes up. According to Agora Finances, within April 7-13 of this year the price on Georgian market increased by 1.5% and accounted for GEL 71 on the 999 gold standard.
International market analysts expect a 22% drop in the gold price of 2014 or to USD 1025. But as traders say international price slumps have not made any influence on Georgian market and it is not expected to have an impact in near future. As a matter of fact the shrinking trend is already reflected on the TGX chart according to which the price per ounce gold slumped on April 16 to GEL 2 230.46 on purchase and GEL 2.298.74 on sale from GEL 2 273.06 and GEL 2.343.06 fixed on April 14 respectively. By April 22 price went down further to GEL 2.220.09 [USD 1268] and GEL 2 288.05 [USD 1307]. But TGX is used by banking broker companies and investors who have some financial knowledge and invest money in gold bullions. General consumer market outside of TGX remains free from undulation. Dealers say gold prices cannot drop down as of yet for they have purchased it for higher prices. But if the price-drop maintains for a long while globally it may witness some drop in Georgia. Meantime they complain of almost stagnated demand for the purchase power of Georgian population plunged lately. Very few buy luxurious jewelry just for pleasure. People buy gold items only for special occasions mainly for weddings. Besides, gold traders work on second-hand jewelry of Soviet time high standard. Newly imported jewelry is scarce and of low-standard and consumer prefers the old one.
Ditrikh Muller, a co-founder of Georgian Investment Group+ and gold-market researcher, ascribes the stagnated gold prices at with the monopoly. “I have been monitoring the gold prices in Georgia since 2004 and it reacted on global trends until 2006-2007 but starting 2008 it pursues only its own play,” he said.
According to him, Georgian consumers’ purchase power is low but dealers kept a focus on Azeri consumers who are of higher purchase power and more interested in golden jewelry. Prices on gold are much higher in Azerbaijan and they used to come to Georgia but once prices went high here demand dropped and prices stagnated.
“On the other hand, there is a vicious circle made of pawn-shops and financial institutions like micro-finance organizations and banks here. Pawn-shops take credits from micro-finances generally, the latter in its turn takes credits at banks and all require gold as a back-up to credits while fix not the global but their own [high] prices. It is an open secret that 90% of gold put in sale at gold trade outlets is brought from pawn-shops and financial institutions for high prices. Ttraders cannot sell them lower than they paid. Just as I said: the vicious circle,” Muller said.

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