Gold prices in India increased sharply in August as investment capital increased and the USD weakened. Entering September, gold prices adjusted, but market demand remained relatively stable.
According to Ms. Kavita Chacko - Head of India Research Department of the World Gold Council (WGC) - international gold prices and domestic gold prices both increased sharply in August. Domestic gold prices increased by 12% in the month, to 158,854 rupees/10 grams.
Strong investment cash flow and weakened USD are the main drivers driving the upward momentum," Ms. Chacko said.
The increase in domestic gold prices was slightly lower than the international market due to a slight increase in the rupee. In September, international and domestic gold prices decreased by 3.9% and 4.6% respectively, amid expectations of a change in Fed monetary policy and weakening capital flows into global gold ETFs.
Domestic gold prices are lower than import prices
A noteworthy development is that gold prices in India continued to trade below the import equivalent price in September. According to the WGC, domestic gold discounts increased from an average of 34 USD/ounce in July to 51 USD/ounce in August, then expanded to 78 USD/ounce as of September 11.
This makes domestic gold prices nearly 2% lower than import prices or gold prices after arriving at ports.
According to market feedback, the activity of exchanging old gold for new jewelry has contributed to supplementing supply, helping domestic gold prices maintain below import prices. Unofficial supply is also considered a factor causing discount rates to expand.
This development shows that gold supply in the Indian market is still relatively abundant, even when international gold prices fluctuate sharply.
Meanwhile, the sharp increase in gold prices in August made consumers more cautious in September. After prices increased and then adjusted, many people switched to waiting and delaying purchases of non-essential jewelry.
However, the demand for gold for weddings still shows resistance. Consumers tend to choose lighter jewelry products to adapt to the high price level.
Large retailers also recorded relatively better demand and promoted product launches, marketing, promotions, and prioritized products with fast consumption rates.
Investment cash flow continues to support the market
Despite gold price adjustments in September, investment demand is still a bright spot in the Indian market.
Capital inflows into gold ETFs in August increased by 67% compared to the previous month, to 272 million USD. Gold holdings increased by 1.6 tons, bringing the total amount of gold of ETFs to 121.3 tons. Total value of managed assets reached 1,912 billion rupees, equivalent to about 20 billion USD.
According to WGC, capital inflows into gold ETFs remained positive for most of the year, showing that gold continues to be seen by investors as an asset allocation channel.
However, the entry rate of new investors has slowed down. Only about 4,000 new accounts were opened in August, bringing the total number of accounts to 12.54 million. This figure is significantly lower than the average increase of 330,000 accounts per month in the January-July period.
Digital gold also maintained its appeal, with an average purchase value of about 262 million USD per month in the June–August period. In August alone, demand increased by 110% compared to the same period last year.
Gold futures trading activity also increased sharply in August. On the Multi-Sectoral Trading Floor (MCX), average daily trading revenue increased by 38% compared to the previous month, to 295 billion rupees, the highest level in 5 months. Trading volume increased by 27%, to 19 tons per day.
WGC believes that the upward momentum of gold prices in August may have boosted risk hedging and tactical trading, thereby increasing market liquidity.
In the opposite direction, India's gold imports fell sharply in August to 2.3 billion USD, 45% lower than the previous month and 58% lower than the same period last year. The amount of gold imported is estimated at about 15–20 tons.
According to the WGC, the decrease in imports shows that the existing gold supply in the country is still sufficient to meet expected demand.
Looking ahead, the WGC expects gold demand in India to improve as the holiday and wedding season enters its peak. However, high and volatile gold prices may continue to make consumers cautious about buying non-essential jewelry.
