India's Gold Demand Cools Post-festival As Prices Surge And RBI Hits Record Reserves

The World Gold Council has released its latest update on India's gold market, highlighting a period of subdued demand following the festival-driven surge in purchases.

According to a WGC press release, despite this pause, the gold market remains robust with significant movements in prices, imports and investor activity.

Global and domestic gold prices have shown remarkable resilience, extending their gains and posting a 12 per cent increase year-to-date.

After reaching an all-time high in mid-May, international gold prices saw a minor correction but still closed the month with a 1 per cent increase, settling at USD 2,343 per ounce.

This upward trend continued into early June, with prices adjusting slightly to USD 2,317 per ounce due to a stronger-than-expected jobs report in the US and a pause in gold purchases by the People's Bank of China (PBoC).

In India, the demand for gold experienced a surge during the Akshaya Tritiya festival on 10 May, traditionally an auspicious day for purchasing gold.

However, this momentum was short-lived as the market experienced a significant drop in demand post-festival.

The rise in gold prices to record levels in mid-May further dampened interest, especially during the usual low-demand period from mid-May to July.

Reports indicate that while there was a strong interest in gold bars and coins driven by positive consumer sentiment towards gold as an investment, jewellery demand has waned and is expected to remain low until the next festival season in the latter part of Q3.

Market conversations suggest that manufacturers are holding off on increasing their inventories and may start building stocks around August, gearing up for an anticipated increase in demand.

The domestic gold price discount to the international price has narrowed significantly, decreasing from USD 24 per ounce in March to USD 6 per ounce by mid-June.
This narrowing gap, despite the post-festival lull, indicates ongoing interest in gold purchases in certain market segments, which typically experience lower demand during this time of year.

In May, Indian gold ETFs saw a reversal in the negative trend from the previous month, registering positive inflows of Rs 8 billion.

This turnaround from April's Rs 4 billion outflow aligns with a global resurgence of interest in gold ETFs.

As of May, the total assets under management for Indian gold ETFs stood at Rs 317 billion, a 37 per cent increase year-over-year, with gold holdings rising to 46 tonnes, up by 1 tonne from April and 8 tonnes year-over-year.

The number of gold ETF folios also saw a significant increase, rising by 136,772 to 5.3 million, highlighting continued investor interest in gold as a financial asset.

The Reserve Bank of India (RBI) has been a prominent player in the gold market, adding 30.6 tonnes of gold to its reserves so far in 2024.

This brings the RBI's total gold holdings to a record high of 834.2 tonnes, constituting 8.7 per cent of the country's total forex reserves.

The RBI's consistent purchases have made it one of the leading central bank buyers of gold globally this year, following Turkey and China.

If the current trend continues, the RBI's annual gold acquisitions could match the 77.5 tonnes net purchase recorded in 2021.

In addition to increasing its reserves, the RBI has been strategically relocating some of its gold holdings from overseas back to India.

Gold imports have continued to grow in May despite high price levels. The value of gold imports was USD3.3 billion, marking a 7 per cent increase month-over-month, although this was 10 per cent lower year-over-year compared to USD3.7 billion in May 2023 when gold prices were 20 per cent lower.

In terms of volume, it is estimated that around 45 tonnes of gold were imported in May, slightly up from 43 tonnes in April but significantly lower than the 63 tonnes imported in May 2023.

The gold market is expected to see renewed activity as the festival season approaches in the latter half of Q3.

Jewellery demand is likely to pick up, driven by traditional buying during festive occasions. Meanwhile, investment demand for gold bars and coins is anticipated to remain strong, reflecting continued interest in gold as a safe-haven asset amid economic uncertainties.

Overall, despite a temporary slowdown following the festival rush, India's gold market remains buoyant, with positive indicators pointing towards sustained interest and robust growth in the coming months. (ANI)