Gold Price, World Gold Council, India Gold Market, RBI Gold Reserve: In the latest update on India’s gold market, Kavita Chacko, the Head of Research at the World Gold Council, noted that the surge in gold prices since early October has tempered demand in the fourth quarter. The LBMA Gold Price PM rose by 11% to US$2,032/oz, and the Indian gold price increased by a similar margin (up 11% to Rs54,233/10g) during this period.
Chacko’s research attributes the rise in gold prices to factors such as a decline in bond yields, expectations of an easier monetary policy, geopolitical tensions, and weakness in the US dollar. However, the impact of these factors varied across currencies, with the Indian gold price influenced by the stable domestic currency.
Indian gold ETFs continue to attract sustained inflows, reflecting growing investor interest supported by strong price performance. In contrast, the Reserve Bank of India (RBI) has paused its gold purchases in November after being a net buyer for eight of the first eleven months in 2023, adding 16.2t to its gold holdings.
Kavita said ”RBI data and our estimates indicate that the central bank did not purchase gold in November,15 the first pause in six months. During eight of the first eleven months of 2023, the RBI has been a net buyer of gold, adding a total of 16.2t to its gold holdings. This is however notably lower demand than previous years. Annual net gold purchases by the RBI averaged 47t from 2018 to 2022.16 The central bank’s gold reserves as at the end of November are estimated to be 803.6t. During 2023, it has been buying an average 1.5t of gold per month.”
Despite India’s robust economic growth driven by healthy consumption demand and government investment, the high gold prices have affected the domestic gold market. Anecdotal evidence indicates lower purchases during the busy wedding season, with jewelry sales volumes taking a hit. The high gold prices have also limited jewelers’ appetite to build inventories, leading to increased jewelry recycling and potentially curbing imports.
Chacko highlighted that the World Gold Council’s econometric analysis shows that over the long term, income and price are the main drivers of gold demand in India. Rising income positively correlates with gold demand, while higher prices have a dampening effect. Looking ahead, jewelry demand may struggle to rebound in the current high-price environment, but investment demand is expected to receive a boost from favorable domestic economic growth prospects.
High gold prices and soft demand have reduced the volume of gold imports, despite a 35% increase in import value. Cumulative imports for the first ten months of 2023 were 2% higher y/y in volume but 12% higher in value, mainly due to the 15% y/y increase in prices. Monthly import volumes fluctuated, with a notable increase in Q3 attributed to the festive season.
Kavita said ”Looking ahead, jewellery demand may find it difficult to rebound while the high price environment remains. At the same time, investment demand for gold is likely to get a boost, supported by the favourable domestic economic growth prospects and the trend of growing domestic investment inflows amidst the prevailing global geo-political and economic uncertainty.”
As of late October 2023, domestic gold prices in India have been trading at a discount to international prices, reflecting subdued local demand. Despite the steep discount, the demand scenario remains muted, with physical demand impacted not only in India but also in other regions, such as China, where premiums have narrowed from previous highs.
