Highlights:
- Global and domestic gold prices stay elevated, y-t-d gains at 16%1
- Jewellery demand subdued; investment demand dominant
- Significant widening of discounts between domestic and international gold prices
- The Reserve Bank of India (RBI) grows its gold reserves with its highest monthly purchase in nearly two years in June
- Gold ETFs inflows sustain momentum in June
- Steady trend in gold imports.
Looking ahead:
- Jewellery demand is anticipated to primarily revolve around the festival season beginning from August
- Continued interest in bars and coins is anticipated.
Gold price resurgence: June decline reversed
Gold prices retreated in June from their May peak, marking the first monthly decline in four months, albeit a modest 0.8%. Prices, however, remained above the significant threshold of US$2,300/oz, which was breached back in April. There has subsequently been a resurgence in prices. Prices strengthened in the second week of July, surpassing US$2,400/oz driven by increased expectations of a shift in monetary policy by the Federal Reserve that has led to a decline in the US Dollar and bond yields.
In 2024 so far, gold has appreciated by 16%, making it one of the best-performing assets globally. Indian domestic gold prices continue to closely track international gold price, supported by the relative stability of the USD/INR exchange rate.
Chart 1: Gold prices rebound
LBMA Price AM and domestic landed price by month, US$ and INR*
Sluggish jewellery demand; rising investment interest
Seasonal factors and high prices have dampened the demand for gold jewellery. At the same time, anecdotal reports indicate persistent demand for bars and coins, with indications of a likely shift from jewellery to bars and coins for some consumers. Moreover, there hasn’t been significant distress selling of gold or profit taking from gold sales that is being reported, as consumers anticipate further price increases.
The period from mid-May to July typically tends to be a slack season for jewellery purchasing. A potential revival in demand is expected with the onset of the festival season in the latter part of Q3. The sustained momentum in the domestic economy, coupled with favourable progress in monsoons and crop sowing, has raised expectation of an uptick in demand (both rural and urban) in the coming months.
Deepening discounts in domestic prices
The discount on the domestic gold price to international price, which stayed range bound between US$1/oz to US$12/oz during mid-April to the end of June, has widened sharply since early July. Discounts have now reached as high as US$50/oz.2 This increase can largely be attributed to increase in supply amid subdued demand in domestic markets. Market reports indicate a significant rise in imports of platinum alloy (which contain over 80% of gold content) from the UAE. Importers are reportedly taking advantage of the import duty differential under the UAE-India Comprehensive Economic Partnership Agreement (CEPA), where the import duty on platinum alloy (5%) is lower than that of gold from the UAE (14%). As per media reports, platinum alloy to the tune of 13t was cleared by customs in the four weeks since mid-June, surpassing the total imports of 9.9t of the same in 2023.3
Chart 2: Increased discounts in domestic gold pricing
NCDEX gold premium/discount relative to the international price*
Steady flow of funds into Indian gold ETFs
In step with the global trend of fund flows, inflows into Indian gold ETFs maintained their momentum through June. During the month, Indian gold ETFs recorded net inflows totalling INR7.3bn, significantly surpassing the 12-month average of INR4.5bn. Except for April 2024, these ETFs have consistently seen sustained inflows since April 2023.
As of the end of June, total assets under management (AUM) of Indian Gold ETFs stood at INR344bn (approximately US$4bn), marking a 54% y/y increase. The collective holding amounted to 47t, reflecting a 24% y/y increase. In H1 2024, gold ETFs attracted INR32bn (US$381mn) in net inflows, a notable improvement compared with the same period in 2023 (INR30mn). This can in large part be attributed to the surge in inflows into multi-asset funds, which saw net inflows of INR35bn (US$413mn) in June alone, an increase of 161% y/y. The net AUMs of these funds stood at INR837bn (US$10bn), up 169%y/y. Gold ETFs have benefited from these inflows given that multi-asset funds are mandated to allocate at least 10% of their portfolio to three asset classes, namely equities, debt and commodities like gold and silver, in accordance with regulatory requirements. Consequently, multi-asset funds have been investing in gold ETFs.
Chart 3: Indian gold ETFs continue to attract investments
Monthly gold ETF fund flows in INR bn and total holdings in tonnes*
RBI ups its gold buying
The RBI ramped up gold procurement in June, marking the highest monthly purchase in nearly two years. According to the RBI data and our estimates, the central bank acquired 9.3t of gold during the month,4 which notably exceeded the average monthly purchase of 5.6t in 2024. The RBI’s gold purchases in H12024 totalled 37.1t, the highest since 2013 and represents a more than threefold increase from last year. Furthermore, these purchases have surpassed the total acquisition of the past two years.5 The RBI's gold reserves now stand at a record 840.7t, constituting 8.7% of total foreign reserves, up from 7.4% a year ago.
The RBI has been a major driving force for central bank gold purchases so far this year. Its gold purchase has been the second largest, after Turkey (43t), and has surpassed those of China (28.9t), which reportedly did not add to its reserves for two consecutive months (May-June). Gold buying by the RBI is likely to prevail as it seeks to diversify its forex reserves.6
Chart 4: RBI increases gold stockpile with fresh buys
RBI’s monthly net purchases and reserves, tonnes*
Gold imports hold firm
Despite high prices and subdued jewellery demand, gold imports have remained within a narrow range in recent months, fluctuating between US$3.1bn and US$3.3bn from April to June. In terms of volume, imports have ranged between 42t to 46t during this period. The gold import bill for June 2024 was 39% lower compared to the previous year, totalling US$3.1bn, and our estimates suggest a 50% decrease in volume terms (around 42t).
In the second quarter of 2024, total imports amounted to US$9.5bn, slightly lower than the previous year's US$9.7bn. However, there was a 23% decline in volume, largely influenced by an 18% increase in prices during this period.
Chart 5: Steady flow of gold imports
Monthly gold imports, tonnes and US$bn*
