By Arun Kumar Shrivastav
A surge in Indian demand for gold jewellery and bars, following a recent import duty reduction, is pushing global gold prices to record highs. According to government data, India’s August gold imports reached a record high of $10.06 billion. This translates to roughly 131 tonnes, making it the sixth-highest volume on record (according to Metals Focus).
While high gold prices typically discourage Asian buyers, the Indian government’s decision to cut import duties by 9% in late July triggered a renewed buying spree. “The impact of the duty cut was unprecedented,” said Philip Newman, managing director of Metals Focus. “It really brought consumers in.”
The duty cut has been a boon for jewellery businesses as they report “fantastic” demand, with customers packed into the store and anticipated sales growth of up to 40% during the upcoming festive and wedding season. Analysts point to expectations of rapid US interest rate cuts as a major driver of the gold rally. Lower borrowing costs make gold, a non-yielding asset, more attractive. A weakening dollar (gold is priced in dollars) further bolsters gold prices.
Central bank buying and strong demand for gold jewellery and bars (India accounts for about a third of global jewellery demand) also contribute to the price increase. However, bullion market experts warned that domestic gold prices in India are quickly catching up to pre-tariff-cut levels.
Gold prices continued their upward trajectory this week, fuelled by escalating tensions in the Middle East. The Iran-Israel conflict has driven a strong demand for the precious metal, even as prices reached overbought levels. On Saturday, the cost of 24-carat gold rose by Rs 120 to Rs 7,785.3 per gram, while 22-carat gold increased by Rs 110 to Rs 7,138.3 per gram.
According to bullion market experts, gold’s appeal as a safe haven is amplified during times of geopolitical instability, particularly in the Middle East. The uncertainty surrounding the region has also led to speculation about potential oil shortages, driving up energy prices. Trade analysts predict that continued interest rate cuts will bolster demand for gold.
However, globally, gold prices dipped by 0.2% to $2,649.69 per ounce, following a stronger-than-expected US jobs report. Analysts warn that if geopolitical conditions deteriorate further, gold prices could experience a more significant surge.
The price of 24-carat gold rose by Rs 10 in early trading on Saturday, reaching Rs 77,680 per ten grams, according to the Goodreturns website. Silver prices fell by Rs 100, with one kilogram trading at Rs 94,900. The price of 22-carat gold also increased by Rs 100, reaching Rs 71,210 per ten grams.
In Mumbai, Kolkata, and Chennai, the price of ten grams of 24-carat gold remained consistent at Rs 77,680. However, in Delhi, Bengaluru, and Chennai, the price varied slightly, ranging from Rs 77,780 to Rs 77,680. Similarly, for 22-carat gold, Mumbai, Kolkata, and Hyderabad had a uniform price of Rs 71,210. Delhi’s price was slightly higher at Rs 71,360, while Bengaluru and Chennai maintained the Rs 71,210 price.
US gold prices remained relatively unchanged on Friday but experienced a slight weekly decline as market participants awaited the crucial US payrolls report for clues about the Federal Reserve’s potential interest rate cut next month. Spot gold was steady at $2,657.13 per ounce, while spot silver decreased by 0.1% to $32.03 per ounce. Platinum rose 0.4% to $994.30, and palladium increased by 0.5% to $1,005.25.
Despite high prices, strong physical demand from various sources (jewellery, investment, central banks) is a positive sign for the gold market. Western investor demand has also played a significant role, with $7.6 billion flowing into gold-backed ETFs in the past four months.
Analysts warn that such a rapid rally could lead to a correction. “There is room for disappointment,” says Adrian Ash of BullionVault. Regardless of potential pullbacks, Jewellers expects strong Indian demand throughout the wedding season. Soaring prices haven’t deterred his customers, he adds, as “Indians are the happiest when prices go high because they already own so much gold. It’s like an investment.”
In China, high prices have dampened jewellery sales but boosted gold bar and coin purchases (up 62% year-on-year in Q2 2024). (IPA Service)
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