Informist, Friday, Apr 26, 2024

MUMBAI – A surge in gold prices, fewer weddings, and election-related restrictions are likely to reduce consumer demand for physical gold in India, Kavita Chacko, research head of India, World Gold Council, said in a note. However, any price stability ahead of Akshaya Tritiya could provide some respite for gold demand, she added.

"Demand is unlikely to experience a meaningful uplift over the next couple of months, particularly while General Elections take place (April to June), as the movement of gold and cash is closely monitored. But some improvement in demand could be expected around the time of Akshaya Tritiya (May 10) if prices stabilise, as this is traditionally considered to be an auspicious time to buy gold," Chacko said.

On Apr 12, gold touched a fresh all-time high of 73,958 rupees per 10 gm on the Multi Commodity Exchange of India, rising 3% from its previous close. In 2023, gold prices on MCX rose 15% owing to geopolitical tensions and expectations of interest rate cuts by the US Federal Reserve.

Prices of domestic landed gold in India reflected the increase in international gold prices, which were up 8%, owing to the relative stability in the rupee, Chacko said. "To date in April, however, the domestic landed price has risen by 4% (to INR72403/10g) versus 3% in the LBMA (London Bullion Market Association) gold price, due to a depreciation in the INR (0.4%) against the USD (dollar)."

From February, prices in India have been at a discount to global prices, and the discount has narrowed this month. The data showed gold was at a discount of $12.79 per ounce, against a discount of $23.85 per ounce in March. Domestic gold prices trade at a discount when international gold prices surge. "Compared to previous gold price spikes, the current domestic price discount is narrower, possibly indicative of pockets of gold demand here," Chacko said.

A similar situation is seen in Indian gold exchange-traded fund inflows. Indian gold ETF net inflows weakened in March to 3.7 bln rupees, a significant fall of 62% from 9.8 bln rupees in February, the research head said.

The recent rally in gold prices has been "unprecedented", Chacko said. While it took a year for domestic gold prices to rise from 50,000 rupees per 10 gm to 60,000 rupees per 10 gm, prices have taken just a "little more than five months" to rise from 60,000 rupees per 10 gm to 70,000 rupees per 10 gm, she added.

Latest trade data released by the commerce ministry showed the value of gold imports in March fell 53.6% on year to $1.53 bln. Gold imports in March fell to 23-24 tn from 61.7 tn in the same month last year.

However, for 2023-24 (Apr-Mar), the value of gold imports rose 30% on year to $45.54 bln compared with $35.02 bln the previous year. The volume of imports for the financial year remained below the pre-pandemic five-year average by 15-17%, the report said.

The decline in gold imports can largely be attributed to the record high prices, up 8% in April, the research head said. "Furthermore, anecdotal evidence suggests that the price surge has spurred the supply of old or recycled gold in the domestic market; together with sluggish jewellery demand the need for fresh imports has lessened," she added.

However, the Reserve Bank of India continues to build its gold reserves at a steady clip, Chacko said. "RBI data and our own estimates indicate that its gold holdings rose to a record high of 822.1 tn by the start of April, representing an 18.5 tn net acquisition since the beginning of the year." End

US$1 = 83.33 rupees

Reported by J. Navya Sruthi

Edited by Avishek Dutta

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