India’s gold market in September: imports declined as retail demand softened marginally

Summary

• The domestic gold price ended 3.1% lower in September at Rs45,6124/10g¹
• Retail demand, although supported by the lower gold price, softened marginally with the onset of Pitru Paksha²
• Official imports declined 27% m-o-m and the local market went back to flat by the end of the month
• Against a backdrop of a lower gold price and heightened stock market volatility, Indian gold ETFs saw 1.1t of net inflows. Total holdings of gold ETFs increased to 35.1t by the end of September
• The Reserve Bank of India (RBI) added 19.7t of gold in September, increasing its total gold reserves to 744.8t
• Strong revival of September rainfall meant the monsoon has ended within the normal range for three consecutive years³

Gold prices down, local premium lower

Gold fell during September, in US dollars, on higher interest rates and a stronger dollar. During the month LBMA Gold Price AM in USD and MCX Gold Spot in INR fell by 4.6% and 3.1% respectively due to INR depreciating by 1.5% over the month.⁴

The average local premium reached US$1.3/oz in the month, US$1.2/oz lower m-o-m. Bullion offtake in the wholesale market tapered with the onset of Pitru Paksha, pulling back the local market to trade at flat in the last week of September (Chart 1).⁵ With increased wholesale demand ahead of the festival season in October, the local market remained at an average premium of US$1–2/oz premium in the first two weeks of October.

Chart 1: Domestic market traded at flat by end of the month as bullion offtake tapered with the onset of Pitru Paksha

Difference between MCX Spot Gold price and landed gold price in India derived from LBMA Gold Price AM

Retail demand softened marginally

Although supported by the lower gold price, retail demand softened marginally with the onset of Pitru Paksha from 20 September – considered an inauspicious period for gold purchases. Retail demand in October is expected to remain robust based on anecdotal evidence of brisk sales during Dussehra.⁶

Indian official gold imports declined in September

Indian official gold imports were 89.5t in September, 27% lower than the 121.8t of official imports in August 2021(Chart 2). Lower official imports in September were driven primarily by the following factors:

• A sharp increase in the published custom tariff rate to US$579/10gm in September from US$555/10gm at the end of August despite a decline in the international gold price, resulting in higher cost of official imports in India
• A weakness in retail demand ahead of the inauspicious period of Pitru Paksha.

A total of nine banks, nominated agencies, and exporters imported 70.4t of bullion, and 19 refineries imported an equivalent 19.1t of fine gold content in the form of gold doré.

Chart 2: India imported 90t of gold in September 2021

Indian monthly imports from January 2019 to September 2021

Gold ETF holdings saw 1.1t of inflows during the month

Against a backdrop of a lower gold price and heightened stock mark volatility, Indian gold ETFs saw 1.1t of net inflows. Inflows increased by Rs4.45bn (US$68.3mn) during September, taking total gold ETF holdings to 35.1t. Total gold ETF holdings at the end of the quarter were at their highest since Q2 2012 (Chart 3).

Chart 3: Indian Gold ETF holdings at end of Q3 touched 35.1t- highest quarterly level since Q2 2013

The RBI ramped up its gold purchases and added 19.7t to its gold reserves

After purchasing 13.9t of gold in the previous month the RBI ramped up its gold purchases and bought an additional 19.7t in September, taking its gold reserves to 744.8t or 6.5% of total reserves. The monthly purchase in September is the highest since the RBI started buying gold consistently from December 2017 onwards (Chart 4).⁷ The RBI has stepped up gold purchases over recent years and has added 68.2t to its gold reserves y-t-d with 41.1t added in Q3 2021.

Chart 4: RBI added 19.7t to its gold reserves in September; the highest level since it started purchasing gold in December 2017

Monsoon ended in the normal range with the strong revival of rainfall in September

Strong rainfall in September wiped out the rainfall deficit (32% excess rainfall in September compared to 24% and 6.8% deficient rainfall in August and July). This meant that the monsoon has ended within the normal range for three consecutive years and cumulative rainfall ended only 0.7% below the long period average (Chart 5).⁸ The pace of kharif crop sowing was marginally lower for the season by 0.9%. With normal monsoon and healthy kharif sowing, kharif foodgrains production is estimated to be 0.6% higher than last year according to first advance estimates.

Chart 5: The monsoon has ended within the normal range for three consecutive years