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Informist, Monday, Oct. 21, 2024

MUMBAI – Demand for gold is likely to rise in the ongoing festival season, largely supported by rural purchases, World Gold Council Research Head India Kavita Chacko said in a report on Monday.

 

The previous surge in demand was seen after the government had reduced the import duty in the Budget for 2024-25 (Apr-Mar), but that was restricted due to record high prices, coupled with an inauspicious period in the Hindu calendar for making purchases of valuable items from mid-September to early October, she said.

 

Market reports are indicating early signs of a resurgence in gold purchases due to various ongoing festivals, with demand largely driven by wedding purchases. Retailers are also actively implementing marketing campaigns to stimulate sales, she said. Demand from the rural areas is also seen rising due to improvements in overall consumption. "Favourable monsoons and higher crop sowing this year are anticipated to boost rural incomes, potentially leading to higher gold purchases", Chacko said.

 

Currently, gold prices in the domestic market have been at a slight discount to the landed price since mid-August. This trend reflects a normalisation in demand after the initial surge following the reduction in import duty, she said. 

 

High inflows in Indian gold exchange-traded funds indicate that investor interest has remained strong since the taxation changes announced in the Union Budget in July. Strong momentum in gold prices and elevated geopolitical risks also contributed to inflows from investors seeking higher returns. On the basis of anecdotal reports, retail investor participation could increase, she said.

 

Net inflows in September fell by 20% on month to $147 million, but were significantly higher than the average net inflows of $63 million in the first half of the calendar year 2024, Chacko said, citing reports by the Association of Mutual Funds in India. So far in the year, net inflows into Indian gold exchange-traded funds were $879 million, up sharply from $202 million a year ago.

 

The sustained inflows and higher gold prices increased the total assets under management for Indian gold ETFs at the end of September to a record $4.7 billion, up 7% on month and 67% on year, she said. "The steady inflow into Indian gold ETFs reflects a global trend of expanding investments in gold ETFs, driven by lower opportunity cost, strong gold price performance, and safe haven demand," Chacko said.

 

The Reserve Bank of India has been increasing its gold holdings in order to diversify its forex reserves and to hedge against external uncertainties, Chacko said. So far in the year, the RBI has added 54.7 tonnes to its reserves, up 6% year-to-date, which is its highest acquisition in three years. The RBI now holds a record 858.3 tonnes of gold, positioning it as one of the leading buyers of gold this year, she said. End

 

US$1 = INR 84.07

 

Reported by Shreya Shetty

Edited by Akul Nishant Akhoury

 

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