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Commerzbank: ETF gold demand makes up for drop-off in Indian imports

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(Kitco News) - India's gold imports ground to a virtual halt last month, but global gold prices held up due to strong demand from exchange-traded funds, said Commerzbank.

“The meager gold demand in India has not done any real damage to the gold price as yet. In fact, it chalked up its largest monthly gain since August 2019 in April, at 6.9%,” said Commerzbank analyst Carsten Fritsch. “This is because the shortfall in demand in India is currently being more than offset by the ETFs.”

He cited Bloomberg data showing that gold ETFs registered inflows of just under 160 metric tons in April, which exceeds the decline in Indian gold imports during the month. Gold ETFs posted inflows of just under 10 tons Monday, he added.

The ETFs trade like a stock but track the price of the commodity, with metal put into storage to back the shares.

Meanwhile, the bank cited reports, which quoted sources close to the government, saying that Indian gold imports were a mere 50 kilograms in April, a far cry from 110 metric tons in the same month a year ago. The near halt was blamed on disruptions to supply chains due to air-travel restrictions, as well as a nationwide lockdown in which shops that sell gold have been closed since the end of March.

“This means that a substantial proportion of demand has been delayed and will probably need to be satisfied at a later date,” Fritsch said. “For example, weddings are likely to be postponed from the spring to the autumn, which could then result in a powerful surge in demand. That said, the lost demand is unlikely to be fully recovered.”

Further, record-high gold prices in the local currency may also mean less gold jewelry will be given as wedding gifts, Fritsch said.

Thus, as long as Indian demand remains soft, gold prices will “depend to a large extent on the willingness of investors to continue buying gold,” he added.

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