India’s rallying jewelry trade helps sustain gold price

Retail gold demand for jewelry in India is rebounding despite record prices for the metal this year, according to BMO Capital Markets.

The country lowered import duties on gold and silver in July after an 8% drop in gold jewelry buying during the year’s first half compared with last year’s initial six months. The discount in India to London Bullion Market Association prices for gold and silver has dropped, Colin Hamilton, BMO Capital Markets director of commodities research, said in a note on Thursday.

“Sentiment at the India Gold Conference in Bangalore last week showed clear signs of improvement,” Hamilton said. “Retailers are reportedly aggressively restocking ahead of the country’s period of festivals.”

The country’s jewelry manufacturers have strong order books to operate at full capacity even as gold hit a record US$2,531 per oz. this month. The high price has seen central banks reduce their demand for bullion by 39% during the second quarter compared with the year-ago period.

Quarter of demand

India accounts for as much as a quarter of global demand for the yellow metal, according to the World Gold Council. Jewelry was around half of the globe’s gold use in the first quarter, slipping to about a third in the second three months of this year, Council data show. Central bank buying is at about 20%.

Hamilton is upbeat in his outlook for the metal.

“With macro asset allocators positioning for the first United States rate cut and retail demand looking slightly better, gold looks reasonably well underpinned,” he said. “The biggest risk being sharp moves in wider equity markets.”