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Focus on Fundamentals: Gold Demand Continues to Surge in India

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Indians are buying gold.

Imports of the yellow metal into India jumped for the first time in seven months in July and the trend appears to be carrying forward into August, according to a report in the Times of India. Gold sales have surged 15% by volume over last year as Indians took advantage of soft prices and kicked off the wedding and festival season early.

According to jeweler associations in India, demand could finish up as much as 20% in August compared with 2017.

We’ve been saying gold is on sale, and that’s a big reason Indians have kicked off the traditional gold-buying season early this year.

“Wedding buying has already started. After two slow months, demand is picking. And if the price continues to remain low for the next three weeks, festival demand for September would go up by 25 to 30%, N Ananthapadmanabhan, MD, NAC Jewellers told the Times.

World Gold Council managing director in India PR Somasundaram told the Times of India that positive sentiment is returning to the country’s gold market after a “gloomy” first half of the year.

Based on discussions with the market, preparations for the fourth quarter are proceeding well with consumer sentiments. Barring Kerala [A southwest region in India experiencing severe flooding] the monsoons have been good and the final quarter is expected to see a rise in demand.”

Analysts projected Indian demand for gold would surge in the second half of this year. Good monsoon rains should lead to a bountiful harvest and higher minimum support (MSP) for summer crops will put more cash in farmer’s pockets. Analysts predicted a 25% increase in demand for the yellow metal compared to the second half of 2017.

India ranks second in the world in gold consumption. The country consumes between 800 and 900 tons of gold annually. Only the Chinese buy more gold.

Because of its appetite for the yellow metal, Indian gold demand has an impact on the global market.

Gold is interwoven into India’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey last year, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Because of its appetite for the yellow metal, Indian gold demand has a significant impact on the global market.

The World Gold Council listed economic growth, particularly in India and China, as one of three macro trends it sees as bullish for the gold market in the coming months. According to the 2018 World Economic League Table, India will leapfrog France and England in 2018 to become the world’s fifth largest economy in dollar terms.

There are also signs of increasing demand for the yellow metal in China. Kingold Jewelry Zhihong Jia CEO told Diamond.net that he has witnessed a strong growing demand for 24-karat gold jewelry and investment products in China. According to the World Gold Council, demand in the world’s leading gold consuming country rose 5% in the second quarter of 2018.

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