India’s gold market update: Gold market broadens; expansion in physical and financial holdings

Gold demand stabilises and remains strong; festive season momentum key

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.¹

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.

Domestic gold price spread narrows

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 ² 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 spurt in consumer demand enabled adjustment in inventory valuations. 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.