Gold at 9 month high, shining on the Occasion of Diwali

Gold prices in India reached to a premium for the first time in nine months on Wednesday as jewelers and dealers in the world’s No.2 consumer of the metal increased purchases ahead of major festivals.

For the third day, gold prices surged today, firming up by Rs 160 to trade at two-week high of Rs 30,540 per 10 grams driven by relentless buying by jewelers at domestic spot market and firm global trends. Globally, gold rose by 0.53 per cent to USD 1,268.90 an ounce

Dealers were charging up to USD 2 an ounce over the set domestic prices. Bachhraj Bamalwa, director at the All India Gems and Jewelry Trade Federation said that the first time premiums have been seen since mid-January.

Gold importers have conventionally charged premiums to lessen risks they take due to currency and price fluctuations. But Gold had been trading at a discount for most of this year due to weaker-than-usual demand and an increase in smuggling. Discounts hit a record high of $100 an ounce in July.  Bachhraj Bamalwa said that in the last 10 days, demand has enhanced due to festivals. The correction in prices is aiding in attracting buyers. 

Gold prices in India have declined over 8 percent since hitting a crest of 32,455 rupees ($485) per 10 grams in July, the highest level in approximately three years.

Demand for gold usually gets strong in the final quarter as India gets ready for the wedding season as well as festivals such as Diwali and Dussehra, when buying Gold is considered auspicious.

Imports at Peak as well:

India’s overseas purchases of gold is likely hit a nine-month high in October, as a spin in domestic prices to a premium provoked banks and refiners to restart imports ahead of the festival season. India is the world’s No.2 gold consumer after China.

Some (Indian) refiners and banks have restarted imports in the last few weeks as discounts came down and the market began to trade in a premium.

Jose, secretary of the Mumbai-based Association of Gold Refineries and Mints, expects India’s October gold imports to reach 60-70 tons, the highest since January and more than double an estimated 30 tons in September.

 

Last month, dealers supplied gold at $32 an ounce below the official domestic price that include a 10 per cent import tax, decrease from a record $100 discount in July, in the middle of continued bleak demand and smuggling. But now they are charging a $2 premium ahead of a seasonal rise in consumption. Retail demand has already improved due to festivals

That has brought back banks and refiners who had been sidelined as increasing entry of illicit gold, which avoids import duties, windswept their margins. A correction in local gold futures is also attracting buyers.

In July, when Indian gold futures hit a close to three-year top, scrap supply went up with people cashing in their old jewelry, denting demand for new gold. India’s gold imports in the first nine months of 2016 are projected to have slumped 59 per cent from a year ago to 268.9 tons. But the trend is changing with a near 8 per cent drop in prices from July highs.