Gold demand loses lustre in peak festival season in India as prices rally

Gold prices near record highs could dampen demand in India during the peak festival season and lead to the lowest purchase volumes in three years, the World Gold Council (WGC) said on Tuesday.

India is the world's second-largest gold consumer, and a drop in purchases could limit a rally in global prices. Falling demand for gold imports could also help narrow India's trade deficit and support the rupee.

Higher prices in the December quarter, which traditionally sees the highest sales of the year, could cut back purchases, said Somasundaram PR, regional chief executive officer of WGC's Indian operations.

Gold demand in India usually strengthens towards the end of the year, which coincides with the traditional wedding season and major festivals including Diwali and Dusherra, when bullion buying is considered auspicious.

Local gold prices jumped this week to 61,396 rupees per 10 grams, near the all-time high of 61,845 rupees hit earlier this year. Last year, prices in the December quarter were nearly 20 per cent lower than this year.

In the December quarter, demand is expected to be lower than last year's 276.3 metric tons, Somasundaram said.

"Currently, price is a significant influencer. If there is a substantial drop in price closer to Diwali, the entire situation could change," he said. Diwali will be celebrated in mid-November.

Indian gold consumption in the July-September quarter rose 10 per cent to 210.2 metric tons, as both jewellery and investment demand improved due to a correction in local prices, he said.

From January to September, gold demand fell by 3.3 per cent to 481.2 metric tons due to sluggish demand in the first half.

In 2023, demand could fall to around 700 metric tons, the lowest in three years, down from 774.1 metric tons a year ago, he said.

Higher gold prices have been prompting some people to sell their old jewellery and coins, leading to a jump in scrap supplies by 37 per cent from a year ago to 91.6 tons in the first nine months, the WGC data showed.

The trend would continue in the December quarter if prices remain around the current level, Somasundaram said.