Summary
- The domestic gold price ended 1% higher in April at Rs51,847/10g1
- Retail demand improved during the month due to a brief correction in the gold price during the final week, wedding purchases, and a pickup in demand ahead of Akshaya Tritiya2
- By the end of April the local market discount had narrowed to US$7-10/oz from US $17-18/oz at end-March
- Official imports remained muted at 27.1t in April, 75% lower y-o-y
- Indian gold ETFs witnessed a healthy net inflow of 2.1t in April, primarily driven by a rising gold price and safe-haven demand during the first half of the month; total holdings of gold ETFs increased to 38.5t
- The Reserve Bank of India (RBI) added a modest 0.9t of gold in April, increasing its total gold reserves to 761.3t.
Looking ahead
- Retail demand remained robust during Akshaya Tritiya, surpassing pre-pandemic demand levels. Retail demand is expected to remain healthy in May due to the ongoing wedding season and lower gold prices
- Gold ETFs in India have seen small positive inflows so far in May likely driven by strategic positioning; we believe that high inflation and continued market volatility could counterbalance potential headwinds from higher interest rates
- Official imports could also pick up due to a lower gold price and restocking by the trade during the wedding season.
Discount in the local market narrowed in April
The international gold price declined in April, led by interest rate volatility and dollar strength. The LBMA Gold Price AM in USD fell by 0.4% and the MCX Gold Spot in rupees (INR) rose by 1% over the month.3
On the back of a pullback in the gold price and festival-related buying last month, retail demand improved. As a result, the discount in the local market narrowed to US$7-10/oz by month-end, compared to a discount of US $17-18/oz at the end of March (Chart 1).4
The Indian gold market flipped back to a premium of US$2-3/oz in the first week of May as lower prices drove demand ahead of the Akshaya Tritiya festival.
Indian 10-year government bond yield saw biggest monthly rise in four years and the rupee depreciated for a fourth straight month
Yield on the 10-year Indian government bond saw a sharp increase during the month, rising 34bps to over 7% – the biggest monthly rise since April 2018. The rise in US bond yield ahead of an expected rate increase by the US Fed in May triggered a rise in bond yield in India. The Indian rupee depreciated for a fourth straight month on the back of a strong dollar and the war in Ukraine (Chart 2).5
So far in May, the Indian 10-year government bond yield has risen further on the back of a sudden rate hike by the RBI. Amid a surge in US treasury yields, a hike in interest rates by the US Fed and a strong dollar, the Indian rupee has plunged to an all-time low.6 The rising bond yield makes gold less attractive as an investment and the depreciating rupee leads to a higher domestic gold price in India, which in turn impacts the wallets of Indian consumers.
Retail demand improved but imports remained muted
Retail demand improved during the month due to a correction in the gold price, wedding purchases, and a pickup in demand ahead of Akshaya Tritiya. Indian official gold imports remained muted, however. Official gold imports in April were 27.1t – 75% lower y-o-y and higher than the import levels of 15.8t in March (72% higher m-o-m) (Chart 3). Official imports in the month were driven by the following:
- Soft retail demand in the first half of the month amid rising gold prices
- Stock building by jewellery manufacturers ahead of the Gems and Jewellery Show (GJS) in early April
- The higher custom tariff of US$631/10g – in force from 14 April until the end of the month compared to US$623/10g – which led to higher bullion import costs in the second half of the month.
Anecdotal evidence indicates that gold demand was robust during Akshaya Tritiya, surpassing pre-pandemic demand of 2019.7 Retail demand is expected to remain healthy due to the ongoing wedding season and the steady gold price. Official imports could also pick up due to a lower gold price and restocking by the trade in preparation for wedding purchases.
Eligibility conditions for importing bullion at 1% duty concession under a Comprehensive Economic Partnership Agreement (CEPA) were announced by the Ministry of Commerce
As highlighted in our previous monthly blog, notifications were issued regarding the pro-rata of 200t of bullion imports from UAE at a concession custom duty of 1%. Further to this announcement a circular was issued by the Ministry of Commerce outlining the criteria for importing bullion under CEPA: only jewellery manufacturers who fulfil certain criteria – a minimum annual turnover, filing of GST annual returns, and trading as qualified jewellers under the International Financial Services Centre Authority (IFSCA) – will be eligible to import bullion under CEPA. Jewellery manufacturers who meet these criteria can import gold bullion at a 1% duty concession and enjoy a waiving of export duty on gold jewellery from India to UAE; factors that should boost gold jewellery exports between the two countries.
The second phase of mandatory hallmarking will come into effect on 1 June 2022
The Ministry of Consumer Affairs has announced that the second phase of hallmarking will cover three additional caratages of gold jewellery: 20k, 23k and 24k,8 and will come into effect on 1 June 2022. This will provide consumers with wider access to retailers from whom they can buy gold jewellery with exact purity.
April inflows into Indian gold ETFs were the strongest for 20 months
Indian gold ETFs witnessed healthy inflows during the month with one fund attracting the majority of inflows (1.8t). Inflows occurred mainly during the first half of the month, driven by a rising gold price and safe-haven demand amid volatility in the local equity market.9 Net April inflows of 2.1t (Rs10.8bn, US$139.3mn) took total gold holdings to 38.5t by the end of the month (Chart 4). Inflows have continued so far in May, albeit at a slower pace, likely driven by strategic positioning; we believe that high inflation and continued market volatility could counterbalance potential headwinds from higher interest rates.
The RBI added a modest 0.9t to its gold reserves
The RBI’s gold purchases increased in April by a modest 0.9t, 63% lower m-o-m. This took total gold reserves to 761.3t (7.8% of total reserves) by the end of April (Chart 5).10 India’s fx reserves fell below US$600bn for the first time since the end of May 2021. The strong dollar and expectations of a rate hike by the US Fed contributed significantly to the fall.
Footnotes
Based on the MCX Gold Spot price in INR as of 29 April 2022.
Akshaya Tritiya is a major gold buying festival in India. Akshaya Tritiya was celebrated on 3 May 2022.
We compare the LBMA Gold Price AM with the MCX Gold Spot price as their trading hours are closer to each other than the most commonly referenced LBMA Gold Price PM.
The premium/discount data is based on the gold premium polled spot price from National Commodity & Derivatives Exchange Ltd.
The government plans to borrow Rs8.45 trillion in H1 FY 2022-23 amounting to 59% of the target for the entire fiscal year of 2022-23.
As of 9 May, the yield on the Indian 10-year government bond was 7.43% and the INR traded at INR 77.42/USD.
Akshaya Tritiya in 2020 and 2021 was impacted by restrictions due to COVID-19. Akshaya Tritiya in 2021 was not impacted by similar restrictions and therefore sales were boosted.
Press Information Bureau. The mandatory hallmarking in India will be implemented in three phases.
BSE Sensex fell by 6.8% between 4 April and 19 April.
Central bank data is taken from IMF-IFS: IFS up until March and weekly statistics from the RBI for April. April’s purchases are as of the week ending 29 April 2022. Please refer to our latest central bank statistics: https://www.gold.org/goldhub/data/monthly-central-bank-statistics.
