(Kitco News) – Indian gold demand was healthy by all measures through the Diwali festival season despite record-high prices, with investment appeal supporting strong sales, according to Kavita Chacko, Research Head for India at the World Gold Council (WGC).
Chacko wrote in the latest WGC update that the domestic gold price in October “mirrored movements in the international price, although with a slightly higher gain due to the 0.2% depreciation of the Indian rupee (INR) and festive buying support,” with India’s gold price closing the month up 5.5%.
“The rally in gold paused post the US election as the dollar strengthened and Treasury yields rose,” she noted. “In fact, both international and domestic gold prices have fallen by 8% since the end of October. Despite this recent pullback, gold remains one of the best-performing assets this year, with a y-t-d return of 17% in INR terms at the time of publication.”
The WGC said that domestic gold has been trading at a slight discount to the international benchmark since mid-August, which reflects a balanced demand-supply dynamic. “Following the sharp import duty cut in July, the flow of smuggled gold into the country has almost ceased, making way for official imports,” Chacko said.
“Domestic gold prices were at par with – or even at a slight premium to – the international prices around the peak festive period in late October, reflecting the higher level of demand,” she added. “The average monthly discount narrowed from US$5/oz in September to US$2.8/oz in October, before tapering to US$1/oz in the first week of November.”
Despite record high prices, Chacko said the Indian consumer market saw strong buying of gold jewelry, bars, and coins during Diwali. “Markets and media reported higher footfall at jewellery stores and robust buying of coins via online as well as offline platforms,” she said. “The price increase since Diwali 2023, has enhanced consumer sentiment, positioning it as a long-term investment. And volatility in domestic equity markets, coupled with rising international prices, has added to gold’s investment appeal. Anecdotal reports suggest that auspicious ‘token’ purchases were rather broad-based, spanning regions and demographics.”
Chacko said higher gold prices drove up the value of sales, despite the year-over-year drop in volume.
The country also saw consistent demand for gold ETFs throughout the month.
“Indian gold ETFs continued to attract strong inflows in October, fuelled by a favourable gold price momentum and increased volatility in domestic stock markets,” she noted. “The long-term capital gains treatment for gold, which was announced in July, has provided a continued boost, as reflected in the significant rise in inflows since that time.”
Total net inflows into Indian gold ETFs reached $1.11 billion over the first 10 months of 2024, representing a significant increase from the $301 million from the same period last year. “These funds have collectively added 12.2t of gold to date in 2024, bringing their total gold holdings to 54.5t and representing a 32% y/y growth,” Chacko said.
The Reserve Bank of India also made a sizeable addition to its gold reserves in October, which boosted total reserves by 10% year-to-date to 882 tonnes.
“According to RBI data and our own estimates, around 28t of gold was added to the central bank’s foreign exchange reserves in the month, bringing total gold y-t-d purchases to 78t,” she noted. “This makes it the second-highest annual net gold purchase by the RBI, after the 257t purchased in 2009. In value terms, gold now accounts for 10% of total foreign exchange reserves, the highest share since 1999.”
“Alongside this expansion the RBI has focused on holding its gold reserves domestically and has reduced the amount kept in safekeeping with the Bank of England and the Bank for International Settlements (BIS),” Chacko wrote. “As of end-September 2024, 60% of the RBI’s total gold reserves – equivalent to 510t – were held domestically, an increase of 102t since March 2024. This marks a significant rise from the 38% held in domestic storage in March 2023.”
Seasonal demand also supported a rise in gold imports last month, posting both monthly and annual increases.
“In October, gold imports rose to $7.13bn from $4.39bn in the previous month, reflecting the seasonal uptick in demand for festivals and weddings,” the WGC said. “Our estimates indicate that the volume of imports was approximately 90-92t, higher than the 59t imported in September. Since the reduction in import duties in July, monthly imports have averaged around 95t, up from 50t earlier in the year. Year-to-date, gold imports have grown by 21%, totaling $44bn, with volumes remaining steady at around 635t.”
Looking ahead, Chacko said that a gold price correction or stabilization could further stimulate demand after the peak festive season and during the upcoming wedding season from November to March, while “Bullish sentiment is likely to sustain investment interest in gold amid ongoing volatility in equity markets.”
