India Increases Gold Demand Ahead of Religious Festivals

Gold demand in India is on the rise this week as buyers begin to make purchases ahead of some upcoming Hindu religious festivals. Each year, a predictable increase in the demand for the precious metal is seen during these same periods as purchases of ceremonial jewelry are made in preparation for various celebrations.

This Friday, the country will honor the elephant-headed god Ganesha and on October 23rd, the Hindu festival of lights, Diwali will be celebrated. Both usually see an increase in gold demand.     

The price of gold in India is at a slight markup above the London Spot Price– $10 to $13 per troy ounce, which is up from zero in July. When such a markup occurs, it typically indicates an increase in gold demand. 

India is the second-largest consumer of gold globally, behind China. Most of the country’s gold is imported, and as a result, the price is generally a bit higher than global prices. The severity of this premium is usually dependent on local supply as well as the current government’s high import duty on the metal (10%).

The import duties imposed by the government have not stemmed the demand for the metal however, but instead spurred a thriving black market and a sharp rise in illegal gold smuggling. The Mumbai airport reported earlier this year that illegal gold seizures are at their highest in nearly two decades.  

Another instigator for the rise in gold purchases for India is the belief by many analysts that gold is currently under-priced and therefore, ripe for investment. 

India and China combine for 70% of the world’s gold market. While demand for gold in China has been reported as “tepid” in recent weeks, recent revelations that the country is deliberately under-reporting their gold demand for geopolitical and economic reasons have led many to view these reports with skepticism.  

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