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India is the second largest gold-consuming country. Purchasing gold on Diwali is an Indian tradition because it is believed that investing on this day is auspicious considering a wealth management perspective. Around 60% of India’s total gold demand comes from rural areas; hence a good monsoon season coupled with little to no crop damage can augment gold demand. This year, a good monsoon has helped to drive the physical gold demand in Diwali and Dhanteras. However, a sudden surge in the gold rates is expected to impact the Indian gold markets this festive season. December to January is the peak season for weddings in the country and amplifying gold rates can negatively impact the gold demands.   

Reasons for the bullish gold market

Indian gold rates are strongly bullish this month and edging up near to the all-time high level, and in the international markets the yellow metal has reached US$ 2000 due to a positive market outlook. Recently the Israel-Palestine war triggered unsteadiness in the global political situation which is the most significant reason for a bullish gold market. Aashika Jain and Armaan Joshi, Editors at Forbes mention, “Gold prices in India have undergone a significant transformation over the past year, and this evolving trend is poised to continue, with the recent Israel-Hamas conflict playing a notable role in the anticipated increase.” Hence, as safe haven concern, investors are looking forward to buying gold which is pushing the demand; further leading to a price surge.

Additionally, the US Federal Reserve raised the interest rate to 525 bps (5.5%), since last year, curbing inflation. A rate hike by the US Fed leads to an increase in gold prices. Commodity market analysts believe that the further roadmap for gold rates will remain bullish as the US dollar has been losing momentum consistently.

Indian gold market

The 22 carat gold rate was quoted at around Rs.50,000/10 grams and 24 carat gold rate was quoted at `55,000/10 grams in January this year. The rates have matured to around Rs.57,000/10 grams for 22 carat gold and Rs.62,500/10 grams for 24 carat gold. The rates have augmented sharply by around `7000/10 grams which is historical in the past few years. In 2020, due to the pandemic the yellow metal showed a sudden gleam; this year again the gold rates are shining bright which is quite positive for the gold dealers.

Profitable gold market against the stock market

Comparing the yellow metal against the stock market, gold investors made alpha returns. Nifty 50, the key benchmark index has surged around 7% in the past year. However, on the Multi Commodity Exchange (MCX) gold rates have surged by around 18% in the past year. Significantly, silver prices have also climbed from around Rs.57,700/kg to Rs.70,000/kg levels, marking above a 21% rise in this period.

Global gold markets

According to recent World Gold Council data, global central banks gold buying maintained a historic pace but fell short of the Q3, FY22 record. Jewellery demand softened slightly in the face of high gold prices, while the investment picture was mixed. Major central banks around the world have been steadily increasing their gold reserves, which has boosted sentiment for gold. We have only seen two months this year where central banks were net sellers; the pace of buying so far this year suggests that central bankers are on track for yet another strong annual addition.

Strong buying from China, Poland, Turkey, Kazakhstan, and a few other countries has resulted in a net total of around 800 tonnes this year. “Our 2023 outlook is for growth in total investment demand (including OTC), in contrast with weaker fabrication demand in the face of elevated gold prices,” the World Gold Council mentions in a report. World Gold Council adds that gold demand, excluding over-the-counter (OTC) in Q3 was 8% ahead of its five-year average, but 6% weaker y/y at 1,147t. Inclusive of OTC and stock flows, total demand was up 6% y/y at 1,267t.