Gold prices ease as festival demand and RBI purchases drive market activity: WGC 

Following a significant decline in March, gold imports rebounded in April, reaching a value of US$3.1bn, more than double the amount of the previous month and three times higher than the same period last year 

Mumbai: As of mid-May, global and domestic gold prices have slightly decreased from their April peaks, although they remain up 15% year-to-date. This modest pullback follows significant gains earlier in the year, driven primarily by profit-taking activities. 

Gold prices saw a strong performance in April, ending the month up 4% after an 8% rise in March. By mid-May, prices moderated by 1%, trading at over US$2,350 per ounce. This price moderation spurred strong demand during the Akshaya Tritiya festival on May 10, traditionally one of the most significant days for gold purchases in India. Reports indicate that festival demand exceeded expectations, with substantial buying observed in both urban and rural areas. Consumers pre-booked gold jewellery, bars, and coins, anticipating further price increases, particularly for the upcoming wedding season.

Looking ahead, gold demand is expected to revolve primarily around the festive period starting in August-September. Jewellery demand may remain subdued following the recent festive buying spree, with purchases largely confined to weddings. However, interest in gold bars and coins is likely to persist, particularly among younger buyers who view gold as an asset. 

Rising consumer interest has been reflected in the reduced discount on domestic gold prices relative to international prices. India’s gold price discounts averaged US$3/oz in the first half of May, down from US$10/oz in April. Despite the net outflows from gold ETFs in April, total assets under management (AUM) increased by 5% from the previous month and 43% year-on-year, reaching INR328bn (US$3.8bn). The number of gold ETF folios also rose significantly, indicating strong investor appetite for gold as a financial asset. 

The Reserve Bank of India (RBI) has continued to bolster its gold reserves, adding 25 tonnes since the start of the year. The RBI’s gold holdings reached a new peak of 828.6 tonnes at the beginning of May. After adding 5.6 tonnes in April, the RBI has made a net acquisition of 25 tonnes of gold bullion since the start of the year. On average, the RBI has been purchasing around 6 tonnes of gold per month in 2024, already surpassing its total gold acquisitions for 2023. Gold now comprises 8.5% of India’s total reserves, up from 7.7% at the end of 2023. 

While gold prices have pulled back modestly from their April highs, the market remains robust with strong year-to-date gains. The recent festival-driven demand underscores gold’s enduring appeal, especially amid economic uncertainties. As the year progresses, demand is expected to remain strong around key festivals, with continued interest in gold as a safe-haven asset. 

Courtesy: World Gold Council