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Focus on Fundamentals: Indian Gold Imports Expected to Jump in Fourth Quarter

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After hitting their highest level in 15 months in August, analysts expect Indian gold imports to continue climbing in the fourth quarter.

The flow of gold into India hit a 15-month high when it more than doubled to 100 tons in August. Demand started climbing in July when imports jumped for the first time in seven months.

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 can have an impact on the global market.

According to a Reuters report, analysts expect demand to remain strong through the final quarter of 2018.

India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee at the same time traditional buying will rise during the festival season, said multiple sources involved in the market.”

Analysts say Q4 imports could rise as much as 9% year-on-year to around 250 tons. Bullion dealer Bachhraj Bamalwa said he expects festival buying to be robust this year and investment demand is also gaining traction.

Analysts had 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.

Indians have been taking advantage of the lower gold price in recent months and kicked off the traditional gold-buying season early this year. 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 say falling Indian stocks and the weak rupee may drive investment demand for gold in India. Like many emerging economies, India is feeling the pressure of a strong dollar. India’s NSE equity index has fallen 7%  from a record peak in August and the value of the rupee has dropped 13% this year. Meanwhile, local gold futures have risen about 6% since a low in mid-August. Bullion wholesaler Daman Prakash said this has prompted Indian investors to look for ways to diversify their portfolios.

Rupee is consistently falling and we don’t know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold.”

Investment demand for the yellow metal began falling off in 2014 as equity markets rallied. But as one investor told Reuters, many think there is limited upside at this point, “so they are moving back to gold.”

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.

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