India’s voracious appetite for gold may prop up global demand

A recent drop in gold prices helped boost the retail sales of the precious metal during Diwali, a festive period that Indians consider auspicious to wear gold.

Gold prices had hit $2,000 per ounce after the Hamas’ 7 October attack on Israel before retreating on waning concerns of an escalation in the war.

High demand for the yellow metal in India is expected to support global prices in the current quarter, some analysts said.

In India, gold consumption peaks during Diwali and Dussehra festivals between October and November, overlapping with the country’s wedding season, which generates about 50% of the gold demand.

The World Gold Council (WGC) forecasts that increased Indian sales in the latter half of 2023 will somewhat compensate for the lower consumption seen from January to June.

The council projects the total demand for the year to range between 700 and 750 tons, a decrease from the previous year’s 774 tons.

Along with Russia, China, Turkey and Kazakhstan, India is among the most prolific buyers of gold.

ANZ Research said in a report on Monday that central banks have bought 800 tonnes of gold in the past three quarters, well above estimates.

“Central banks’ gold purchases are likely to stay strong. A dip below $1,930 may lead to more selling, but geopolitical tensions should help support prices. This will coincide with the end of the US’s monetary tightening and a likely peak in the US dollar,” ANZ Research said.

“Based on the current pace of purchase, we upgraded our demand estimates to 1,050 tons from 750 tons for 2023 and 800 tons for 2024. This should reduce the burden on physical and investment demand for clearing the market surplus,” it added.

Gold buying accelerated in 2022 after the US and other countries imposed sanctions and froze Russian assets

Central banks in emerging markets are positioning themselves against rising debt levels in reserve currency economies (such as the US, Europe and Japan) as this increases the credit risk.

After Turkey (147 tons), major buyers were Qatar (35 tons), Iraq (33.9 tons) and United Arab Emirates (19.5 tons) in 2022. China joined as a net buyer in November 2022 and bought 62.2 tonnes, Overall, central banks purchased a record 1,082 tonnes in 2022.

“With the current pace of central bank buying, we expect total purchases to be at 1,050 tons in 2023, marginally lower than the level last year. We lift our expectation to the 750–800t range for the coming years” ANZ Research said.

Investment in gold bars and coins this year is similar to last year’s first three quarters, driven by strong demand in the Middle East, Turkey, and China in the first half, WGC said. However, gold ETFs have experienced a decrease, with 189 tons withdrawn so far, marking six straight quarters of declining demand, it added.