India’s Investments in Gold Bars and Coins Reach Highest Levels Since 2015

India’s demand for gold increased by 10% during the third quarter of 2023, touching 210.2 tons, while global gold demand rates remain 8% ahead of five-year averages. During this third-quarter period, gold bar and coin purchases in India reached 55 tons, representing the highest level recorded since 2015, according to data from the World Gold Council.

The period from July to September in India showed a 20% jump in gold coin and bar demand compared to the same quarter last year. 2023’s third quarter also displayed a 38% increase above India’s five-year quarterly average, which typically sits at just 40 tons.

“Investors reacted to the downward correction in the gold price from its Q2 record high, adding to their holdings in the expectation of a price recovery in Q4 as the wedding and festive season gets underway,” the report explained.

Investors often wait to strike while prices are low, which is exactly what occurred here. Global gold demand remains 6% weaker year-on-year. That factor, combined with the necessary pricing correction, could explain the lower prices during the end of the second quarter and the start of the third.

The buy-in opportunity was short-lived, though, as India’s holiday season approached quickly. India’s retail demand rates typically spike the most near the end of the year as the festive season increases gold buying. Most analysts expect to see the biggest spike in gold prices by quarter four, hence the uptick in demand during the third quarter to prepare for the potential gains.

“In the last quarter, as prices softened a bit, more people were waiting to buy gold and bought more bars and coins instead of  jewelry.  Therefore, there was a 20 percent jump in demand for bars and coins in Q3,” WGC India Regional CEO Somasundaram PR explained.

Quarter three began with a relatively slow start, most likely because of Adhik Maas, an extra lunar month added to the calendar every three years for synchronization purposes. Adhik Maas is usually seen as inauspicious for buying new things, like precious metals. By August and September, though, festivals like Varalakshmi and Nombu Onam quickly revived buyer sentiment.

Dhanteras, which marks the first day of Diwali, is often seen as the most auspicious day in the Hindu calendar. Dhanteras occurs on the thirteenth lunar day of Krishna Paksha, or the Hindu calendar month of Ashvin or Kartika, which will be November 10 this year. Each year, Dhanteras sparks one of the highest levels of precious metals buying and jewelry demand of all days in India.

During the third quarter of the year, festive-related gold buying helped southern portions of India outperform the rest of the nation. North India, on the other hand, saw a decline in purchase levels, likely because of its weaker rural sector demand rates relating to the mid-way monsoon season. Luckily, the upcoming festivities can likely make up for the lack of rural buying last quarter.

“The economic environment remains supportive, with most macro indicators pointing towards continued momentum in economic growth. And a good 2023 monsoon bodes well for farm incomes in Q4,” the World Gold Council explained in its report.

India’s monsoon season typically lasts from June to September, when the nation receives around 90% of its rain in only four short months. The outcome of the monsoon season directly impacts the nation’s harvests and the wealth of its rural population for the next few months. India’s rural population makes up 60% of the nation’s total gold purchases, meaning a successful monsoon season can directly equate to increased gold buying.

Quarter three showed lower rural gold demand because harvesters had not yet seen any yields from crops, as the monsoon season was still underway. Now that the monsoon season has concluded and harvesters have hopefully yielded some profits, the World Gold Council expects to see increased gold purchase levels during the fourth quarter as the rural sector shifts focus back to gold buying.

The increased gold prices from quarter three have also boosted interest in lower-carat gold products like 18- and 14-karat gold. With retailers promoting these higher-margin products, larger companies have continued to perform well.

According to the World Gold Council, gold bar and coin demand increased in China as well after the local premium hit a record high in September. “Quarterly demand for gold bars and coins in China, at 82t, was the strongest since Q1’21. Economic and geopolitical uncertainty, as well as disappointing performance from other assets, drove demand up 16% y/y and 66% q/q,” the report stated.

As always, investors should consult their advisors before making any portfolio decisions.

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