India’s Gold Market Rebounds: Festive Demand Expected

The World Gold Council’s latest “India gold market update” confirms a recovery in India’s gold market following a sharp correction observed in June. A cautiously optimistic outlook prevails for the coming months, driven by improving demand and expectations for a stronger festive season.

This market rebound is primarily attributed to shifting monetary policy expectations, a weaker US dollar, and renewed inflows into gold exchange-traded funds.

Jewellery Demand Returns

The price correction stimulated a return in jewellery demand, as consumers viewed it as an opportune buying moment. Deferred purchases have now resumed, increasing footfall and driving demand beyond solely wedding-related acquisitions.

• Manufacturers report higher order flows.
• Jewellers are actively replenishing inventory for the upcoming festive season.
• Exchange of old gold for new jewellery remains significant, contributing to market supply and maintaining domestic prices at a discount.

ETF Inflows Maintain Momentum

Indian gold ETFs continued to attract investor interest through July, recording net inflows, albeit at a slower pace than June. This investor confidence persisted into August, adding thousands of new accounts.

• Net inflows reached ₹1,560 crore (US$163 million) in July.
• Holdings increased by 1 tonne, reaching a total of 120 tonnes.
• Total assets under management (AUM) rose to ₹1,73,300 crore (US$18.1 billion).
• An estimated ₹1,179 crore (US$124 million) in net inflows occurred during the first two weeks of August.
• 57,000 new investor accounts were added in July, bringing the total to 12.53 million.

Futures Market Activity Increases

Gold futures trading on the Multi Commodity Exchange of India (MCX) saw a noticeable pickup in July. Average daily trading volumes and turnover both registered month-on-month increases, reflecting renewed market engagement.

• Average daily trading volumes rose to 14.9 tonnes.
• Turnover increased by 9% month-on-month, reaching ₹21,400 crore (US$2.2 billion).
• Turnover was 35% higher year-on-year, driven by elevated gold prices despite volumes remaining below January’s peak.

Gold Imports See Significant Surge

Gold imports rebounded sharply in July, more than doubling compared to the previous month. This surge signals improved physical demand and essential inventory replenishment by retailers and manufacturers in preparation for the festive period.

• Imports more than doubled to US$4.16 billion (40-45 tonnes) in July.
• This compares to US$1.97 billion (20 tonnes) recorded in June.
• Gold’s share of total merchandise imports stood at a modest 5%.

The World Gold Council maintains its cautiously optimistic outlook, anticipating sustained improved demand and a strong festive season. Investment demand is expected to remain supportive, even if potentially elevated prices influence some jewellery purchases.