India’s appetite for gold expected to push price higher in September

Every Investor

Gold Sovereign

By Christopher Menon

on Friday, 29 August 2014 at 17:10

Gold demand in India set to increase, driven by festivals and weddings

Although gold is down on its year high of almost $1383, Indian gold buying could well drive the price higher in September.

According to figures from Bloomberg, bullion averaged gains of 3% each September over the past 20 years – although prices did slip 4.7% last September, bucking this long-term trend.

The reason given for this rise is that India’s main festival period runs from late August to October and is followed by the wedding season. At festivals such as Diwali gold is often bought, with some given as presents to relatives, while at weddings it is customary for the bride to receive gold jewellery.

Daniel Fisher, ceo at UK precious metals dealer Physical Gold, explains: “Indians save around 30% of their income on average (compared to 5% in the US), and a large proportion of this is used to buy gold. India had been the number one global consumer of gold until very recently due to their traditions, only recently usurped by China. Therefore spikes in demand in India have a direct impact on gold prices. India accounts for around 30% of the global gold market with half going towards 10 million weddings annually. As the Indian middle class grows, we can expect them to tighten their impact on gold.”

Fisher added: “With trading volumes currently very low, we could realistically expect the wedding season to boost activity by 25%. I’d expect gold to finish the year around 7% higher than its current level.”

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Indeed, such is the demand for gold in India that the previous government tried to curb imports to ease its high trade deficit, imposing a record high duty of 10% on overseas purchases of gold. It was rumoured that the new Indian government would reduce this  but it shows no sign of doing this yet.

According to the Wall Street Journal, the mark up on world market prices that Indian consumers are now paying to secure the physical precious metal is around $10 to $13 dollars a troy ounce.

A good monsoon has also meant that India’s rural inhabitants (who still comprise the majority of its population) will be able to buy more gold.

Indian demand

In the first half of the year Indian consumer demand for gold (jewellery, bars and coins) totalled 394.4 tonnes against 471 tonnes in China, according to the World Gold Council. Although this doesn’t include gold smuggled in by consumers wishing to avoid import duties.

China and India combined make up over half of global consumer demand for gold (which is made up of jewellery, bar and coin demand).