Summary
- Indian gold imports were 38.3t in October 2019 – 15% lower than the same month last year
- The domestic gold price rose by 3.1% during October, ending the month 22.4% higher than the end of 2018
- With the festival of Dhanteras in October and onset of wedding season in November, the discount in the local market narrowed to US$3/oz by end of October from a discount of US$29.5/oz at end of September
- Late withdrawal of the monsoon, with heavy rainfall in several states of India, damaged the kharif crops and more than 60% of kharif crops traded below the minimum support price (MSP) in October due to high moisture content and little progress in procurement of crops from government1
Consumer demand weak in October
After a weak Q3, domestic gold demand remained soft in October. After the correction in the domestic gold price (9995 fineness) at end of September down to Rs 37,475/10gm, it) rose again in October, following the trend in the international gold price and ending October at Rs 38,650/10gm – a rise of 3.1% during the month. Dhanteras – the Festival of Light, which fell on 25th October – failed to bring cheer to gold demand as the higher domestic gold price (21.8% higher than 2018) and weak economic sentiment curtailed gold sales. Festival demand got some support from wedding purchases, but overall sales volume is estimated to be 25-30% lower than last year.
Weak gold demand reflects wider economic malaise
The pain in the domestic economy continued in October. A combination of domestic and international activities have depressed overall economy and demand in India. On the domestic front, growth has weakened due to slowdown in private consumtion and slower bank credit growth. On the global front, global uncertainties and trade tensions between US and China have impacted investment activity in India.
Consumer price inflation (CPI) breached the Reserve Bank of India’s (RBI) medium-term target of 4%, hitting a 16-month high of 4.62%, led by higher food prices. Core inflation for October however showed a more worrying trend and slowed to 94 month low of 3.47% reflecting slowdown in the economy (Chart 1).
Festival season failed to lift consumer sentiment in October.Passenger car and motorcycle sales fell by 6.3% and 33.4% y-o-y respectively. With stocking-up by trade across various industries, Goods and Services (GST) collection improved marginally to Rs953.8bn in October from Rs919.16 bn in September but 5.3% lower y-o-y.
Local discount narrowed to four months low on stock-replenishment
Retailers and bullion dealers started to replenish their inventory before Dhanteras and the discount in the local market narrowed sharply from US$29.5/oz at end of September to US$4/oz before the Dhanteras day (Chart 2). The discount continued to narrow due to uptick in both wholesale and retail demand ahead of the wedding season in November, down to US$3/oz by end of October.
Imports were higher m-o-m
Inventory replenishment was reflected in the monthly rise in gold imports. Indian gold imports totalled 38.3t in October 2019 – 15% lower y-o-y, but 46% higher m-o-m (Chart 3).
A total of six banks, nominated agencies and exporters imported 30.1t of bullion during the month, twelve refineries imported 8.2t of gold doré (fine gold content) (Chart 4). Including jewellery exports and round-tripping estimates, net gold imports in October were 14.6t, 41% lower than 26.6t imports seen in October 2018.2
Most of the bullion was sourced from Switzerland (82%) and the UAE (12%) in October. The prominent gold doré exporting countries to India were Peru, Ghana, Tanzania and USA - accounting for a combined 73% of gold doré imports in October.
Excess monsoon rainfall likely to impact rural incomes
More than 60% of the kharif crop arrivals in October were trading below the minimum support price (MSP).3 Late and heavy rainfall in the states of Madhya Pradesh, Rajasthan, Gujarat, Uttar Pradesh and Maharashtra damaged standing kharif crops. With high moisture content of kharif crops and little progress in procurement of crops by government, eight of the thirteen kharif crops were trading at price lower than MSP (Chart 5). Excess rainfall is expected to impact kharif crop output and, consequently, farmer income may be only marginally higher than last year.
Footnotes
1 Kharif crops are sown during monsoon (June-September) and harvested from October-March.
2 Round-tripping is the act of exporting gold, be it jewellery, bars or coins, with the sole purpose of melting it down before re-importing it back to the original exporting country.
3 Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure farmers against any sharp fall in agricultural prices.
