On Friday, the World Gold Council (WGC) said that the rural purchase of gold this festive season will provide fresh momentum to gold demand in the country. WGC has earlier revised the demand for gold this year to 850 tonnes from 750 tonnes.
“Rural consumption demand has been showing signs of improvement and given the favourable monsoons and higher crop sowing this year, economic conditions there are expected to improve. This could lead to increased gold buying interest, particularly during the ongoing festive period,” said Kavita Chacko, Research Head India, WGC.
Momentum in gold jewellery buying and investment is expected to continue and rural buying to provide impetus, the report said.
Gold experienced strong gains in August, with international prices rising by 3.7% and domestic prices by 3.9%, driven by the expectation of easing interest rates in the US and the resultant drop in the US dollar. Gold’s strength was extended to September; the international and domestic prices have increased by 2.8% and 1.6% respectively.
Despite these gains, domestic prices remain 2 per cent below their levels before the Union Budget announcement on July 23, due to the 9 per cent reduction in import duty from 15 per cent to 6 per cent.
Following an initial surge in consumer demand (for jewellery and bars and coins) due to the sharp import duty cut, demand is reported to have since normalised. However, market reports indicate that overall buying momentum remains healthy, with an uptick compared to the period before the import duty reduction. Purchases previously deferred are now materialising, and there is increased interest in heavier pieces of jewellery.
Industry participants anticipate that this momentum will continue, though they are closely monitoring the crucial festive and wedding season sales that run through late August to December. Media and market reports indicate that festive buying has started on a strong note.
The rise in international gold prices, combined with increased supply from higher imports has led to a narrowing of the spread between domestic and international gold prices. Following the import duty cut announced on 23 July, domestic gold prices initially traded at a premium of US$5-US$28/oz over international prices from late July to mid-August. Wholesalers and bullion dealers, facing losses on inventory purchased under higher import duties, increased their prices up to offset these losses.
However, a strong initial consumer demand spurt enabled inventory valuation adjustment. In recent weeks, amid the normalising, but still healthy demand, domestic gold prices have been trading either at a slight discount to or in line with international prices.
Meanwhile, India’s gold imports in August surged to 123-127 tonnes, nearly tripling from July and significantly up from 89.4 tonnes a year ago, due to several key factors.
The primary drivers include the onset of the festive and wedding season, which traditionally boosts gold demand, along with importers stockpiling gold in anticipation of further price increases driven by global inflation and geopolitical uncertainties. Additionally, a weakening rupee prompted higher imports as importers sought to avoid future costlier purchases. Despite being near record highs, relatively stable global gold prices also encouraged importers to capitalize on current rates.
