Gold price slump may boost demand from India’s festive shoppers

Strong purchases during the October-December festival period, considered an auspicious time to own and wear gold, may underpin the global market. But the positive outlook, which follows a drop of almost 12% in purchases in the first half of 2023, is likely to increase imports and strain the country’s trade deficit that has already widened due to elevated oil prices.

“Overall, the sentiment is positive and this price drop has come at the best time for the market,” said Suvankar Sen, managing director of Kolkata-based Senco Gold Ltd. Footfalls have increased in stores and Indian demand is expected to be 10% to 15% higher than last year in the festival season, he said

Gold prices in India, the world’s second-biggest consumer, have dropped about 7% from a record high in May. Although, the Israel-Hamas conflict has arrested a fall in global bullion prices, they are facing pressure from surging US bond yields due to expectations that the Federal Reserve may keep the monetary policy tighter for longer. Higher rates are typically negative for gold, a non-yielding asset.

The brighter demand prospect has buoyed shares of major jewelers in India. Kalyan Jewellers India Ltd. has jumped 15% so far this month, Tribhovandas Bhimji Zaveri Ltd. has gained 5%, while Tata Group’s Titan Co. has advanced almost 4%. Shares of SAIF Partners-backed Senco has doubled from the offer price since its listing on Indian exchanges in July.

The World Gold Council said in August that demand in India, the world’s most populous nation, may drop this year to 650 tons to 750 tons, the lowest since the coronavirus pandemic hit the country in 2020, from 774 tons in 2022. The group is expected to release its data for the July-September quarter and estimates for the full year soon.

In contrast to earlier expectations of a sharp decline, there are now hopes that demand could be flat this year, said Chirag Sheth, principal consultant with Metals Focus Ltd. “If prices remain around these levels until Diwali in November or fall more, then we can see a fairly good increase in sales,” he said, referring to the Hindu festival of lights.

Some of the price benefits for consumers will depend on the local currency, Sheth said, adding that a weaker rupee could negate the advantages of lower global gold prices. A depreciating rupee makes gold expensive in India as the nation imports almost all the bullion it uses, mainly from Switzerland.