Gold prices surge as rural recovery and festive season drive strong demand: World Gold Council

NEW DELHI: Gold prices are witnessing a strong resurgence in both international and domestic markets, with increased jewellery buying and investment activities expected to persist, according to the latest report from the World Gold Council.

Rural demand, in particular, is showing signs of recovery. With an improved monsoon season and higher crop sowing this year, rural economic conditions are set to strengthen, which is anticipated to drive increased gold purchases, especially during the festive period.

The report highlights that gold prices continued to strengthen in September. International gold prices rose by 2.8 per cent, while domestic prices increased by 1.6 per cent over the same period.

Despite these gains, Indian gold prices remain 2 per cent below pre-Union Budget levels due to a 9 per cent reduction in import duties announced in July. Gold saw a strong performance in August, with international prices rising by 3.7 per cent and domestic prices up 3.9 per cent.

This upward trend was largely driven by expectations of easing interest rates in the U.S., leading to a drop in the U.S. dollar, which further supported gold's appeal as an investment. Gold demand in India has remained robust, particularly following an initial surge after the import duty cut.

Though demand for jewellery and bars and coins has since stabilised, industry reports suggest buying activity remains stronger than before the duty reduction. Many purchases that were previously delayed are now materialising, with consumers showing increased interest in heavier jewellery pieces.

Looking ahead, industry participants are closely monitoring the key festive and wedding season, which runs from late August through December. Festive buying has already started strong, and the wedding season is expected to further boost sales.

Indian gold exchange-traded funds (ETFs) have witnessed a surge in investor interest since the import duty cut and changes to long-term capital gains tax for gold ETFs were announced in the Union Budget.

August saw record inflows of Rs 21 billion (~USD 238 million), significantly higher than the average monthly inflows of Rs 8 billion during the first half of 2024, according to data from the Association of Mutual Funds in India (AMFI).

Net inflows for the month also reached a record Rs 16 billion (~USD 192 million). Total assets under management (AUM) for Indian gold ETFs climbed to Rs 374 billion (~USD 4.4 billion) by the end of August, marking an 8 per cent month-on-month increase and a 54 per cent year-on-year rise.

So far in 2024, net inflows into Indian gold ETFs have reached Rs 61 billion (~USD 735 million), a significant increase from Rs 15 billion during the same period last year. These ETFs have collectively added 9.5 tons of gold this year, bringing total gold holdings to 51.8 tons, a 29 per cent year-on-year increase.

The steady inflows into Indian gold ETFs mirror global trends, driven by strong gold price performance, safe-haven demand, and reduced opportunity costs. The Reserve Bank of India (RBI) has also continued its gold-buying spree.

Data indicates that the central bank acquired 10.3 tons of gold over the six weeks leading up to September 6, bringing its total purchases for the first eight months of the year to 50 tons.

This surpasses the net gold purchases made in both 2022 and 2023, positioning the RBI as one of the world's leading gold buyers this year. As a result, the RBI's gold reserves have reached a record high of 853.6 tons, representing 9 per cent of its total foreign reserves, up from 7.5 per cent a year ago.

India witnessed a record surge in gold imports in August, with a total value of USD 10.1 billion. This represents a threefold increase compared to the previous month and double the value from a year ago.

The surge can be attributed to the reduction in import duties and heightened seasonal demand in anticipation of the festive season. In volume terms, gold imports reached approximately 140 tons in August, marking a threefold rise from the previous month.

For the period from January to August, gold imports have risen by 30 per cent year-on-year, totaling USD 32 billion, further underscoring the growing demand for gold in India.