India Gold Demand, RBI gold reserve: India’s gold market has seen a 12% year-to-date increase in global and domestic gold prices. However, demand softened following Akshaya Tritiya, and the gap between domestic and international gold prices has narrowed. The Reserve Bank of India (RBI) has added 30.6 tonnes to its reserves this year, reaching a record high of 834.2 tonnes. Positive flows into gold ETFs resumed in May, and gold imports increased consistently.
Kavita Chacko, Research Head, India, World Gold Council, says, “We anticipate that jewellery demand will predominantly centre around the festival season starting in the latter half of Q3. Interest in bars and coins is expected to continue.”
Gold prices hit a new all-time high in mid-May before pulling back due to profit-taking, ending the month at $2,343 per ounce—a 1% monthly rise. This added to gains of 9% in March and 5% in April. Prices further dipped to $2,317 per ounce in early June following a robust U.S. jobs report and a pause in gold purchases by the People’s Bank of China (PBoC). Despite these fluctuations, gold remains one of the best-performing assets this year, with a 12% return. Indian gold prices have mirrored international trends, supported by the stable USD/INR exchange rate.
The Akshaya Tritiya festival on May 10, traditionally a significant day for gold purchases, saw a brief surge in demand. However, gold buying, especially for jewellery, declined afterward, mirroring the tepid demand in March and April due to high prices. The record-high prices in mid-May further suppressed demand during the typical low season from mid-May to July. Nonetheless, there were reports of continued interest in bars and coins, fueled by positive investor sentiment towards gold as a valuable investment.
Kavita Chacko adds, “The current trend of subdued jewellery demand is expected to continue over the next few months with a potential uptick anticipated during the onset of the festival season in the latter half of Q3. Conversations with the industry suggest that manufacturers are choosing not to increase their inventories at this time but could build stock as early as August, with activity picking up steam as the quarter progresses. But investment buying through bars and coins is likely to persist in line with the current trend: from January to March, bar and coin demand rose by 19% year-on-year to 41 tonnes.”
The discount on domestic gold prices relative to international prices has reduced from $24 per ounce in March and $10 per ounce in April to $6 per ounce by mid-June. This decrease in the discount, even after Akshaya Tritiya, indicates ongoing interest in gold buying during what is typically a low-demand period.
Indian gold ETFs experienced a significant turnaround in May, with net inflows reaching INR 8 billion, a sharp contrast to the INR 4 billion outflows from the previous month and well above the 12-month average of INR 4 billion. This increase brought collective gold holdings to 46 tonnes, marking a monthly increase of 1 tonne and an annual rise of 8 tonnes. Additionally, the number of gold ETF folios grew by 136,772, reaching a total of 5.3 million, indicating sustained investor interest in gold as a financial asset.
The RBI’s gold purchasing activity has remained consistent throughout the year. According to RBI data and our estimates, the central bank acquired 3.7 tonnes of gold in May and an additional 2.8 tonnes in the first week of June, bringing the total gold purchases in 2024 to 30.6 tonnes. This has elevated the RBI’s gold holdings to a new high of 834.2 tonnes, which now constitutes 8.7% of the total forex reserves, a level not seen since April 2013.
Kavita Chacko, Research Head, India, World Gold Council, notes, “The RBI has emerged as a significant contributor to global central bank gold purchases this year, following Turkey and China. If the trend of gold buying seen in the first five months of the year continues, the RBI’s annual gold acquisitions could be comparable with the (net) 77.5 tonnes bought in 2021. However, the next few months will provide a clearer picture of the bank’s buying trend.”
Chacko further explains, “Alongside building its reserves, the RBI has been restructuring the storage of gold over recent years. According to its report on foreign exchange reserves, the central bank has been bringing some of its gold previously held overseas to India. This move appears to be motivated by logistical as well as strategic considerations and does not have financial implications, nor does it affect the RBI’s overall gold reserves. Furthermore, the government has granted the RBI an exemption from customs duty on gold imports.”
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Despite high gold prices, May continued the positive trend from April with gold import values reaching $3.3 billion, representing a 7% month-on-month increase but a 10% decrease year-on-year. In volume terms, it is estimated that gold imports in May were around 45 tonnes, up from 43 tonnes in April but significantly lower than the 63 tonnes imported in May 2023 when prices were 20% lower.