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Gold Demand Continues to Rebound in India

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Gold demand in India strengthened in October despite higher prices. This continues a rebound in the world’s second-largest gold market after it was pummeled by government policies during the coronavirus pandemic.

Retail demand was boosted by the festival season in October. Anecdotal evidence shows brisk gold sales during Dussehra after two years of sluggish gold-buying during the festival.

Sales softened a bit during the third week of the month but picked up again the final week, ahead of Dhanteras. “The sales have remained phenomenally good as a lot of people have purchased gold in big numbers,” one seller told the Times of India.

According to the World Gold Council, demand appeared to continue strong into November. Anecdotal evidence points towards robust sales during Dhanteras, with retailers reporting volume sales exceeding the pre-pandemic levels of 2019.

The World Gold Council said three factors underpinned strong gold demand in October.

  • festival purchases during Dussehra and Pushya Nakshatra, which supported jewelry as well as gold bar and gold coin demand
  • wedding purchases that supported jewelry demand
  • higher y-o-y retail inflation (CPI inflation) of 4.48% in October compared to 4.35% in September, which supported investment demand.

Retail gold demand was strong despite a rising gold price in rupee terms. The domestic gold price ended 4.8% higher in October.

Indian investors also continued to turn to gold. Indian-based ETFs increased holdings by 0.3 tons during the month. Indian gold ETFs now hold 35.4 tons of metal.

Official Indian gold imports came in at 89.4 tons in October. That was equal to the import total in September and well above the 10-year average. It was also about 20 tons higher than pre-pandemic October 2019 gold import totals.

Meanwhile, the Reserve Bank of India added 3.7 tons of gold to its holdings in October. The Indian central bank now holds 747.6 tons of gold. That makes up 6.6% of its total reserves.

Rainfall during the monsoon season ended within the normal range for the third straight year. This is good news for farmers and a positive for the gold market. A normal monsoon season generally means a good year for farmers. Farmers with money in their pockets generally buy gold.

India ranks as the second-largest gold-consuming country in the world, second only behind China, but the gold market has languished over the last couple of years. The pandemic crushed demand, particularly for gold jewelry. But even before coronavirus, record-high gold prices in rupee terms and government policy put a drag on the gold market. There were signs of a turnaround late last year and it continued through the first quarter of 2021. The second COVID-19 wave stalled the gold market’s recovery in India early in Q2, but it appears to be regaining steam with strong retail demand and a surge in gold imports.

Indians traditionally buy and hold gold. Collectively, Indian households own an estimated 25,000 tons of gold and that number may be higher given the large black market in the country. The yellow metal is interwoven into the country’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 in 2018, 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.

Gold served as a lifeline for many Indians during the pandemic.

The Indian government’s response to the first wave of COVID-19 ravaged the economy. As a result, many banks were reluctant to extend credit due to fear of defaults. In this tight lending environment, many Indians used their stashes of gold to secure loans. As Indians battled the second wave of COVID-19, many Indians sold gold outright in order to make ends meet.

Indians understand that gold tends to store value and that ultimately gold is money. If they have gold, they know they will be able to get the goods and services they need – even in the event of an economic meltdown. And while westerners may not embrace the cultural and religious aspects of the Indian love affair with gold, the economic reasons for their devotion to the yellow metal are every bit as applicable in places like the US.

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