THE last three months of a calendar year are usually the busiest for the gold market in India, as demand soars with consumers buying huge quantities of the yellow metal for the festive season.

This year appears to be no different, as people embarked on a buying spree in October in major metros including Mumbai, Delhi and Bangalore, hoping to stock up for the holiday season.

Demand for gold peaks a few days before the two major festivals, Dassera — which was celebrated last week — and Diwali, which begins in the first week of November.

Interestingly, demand for gold is expected to go up just before the five-day-long festival of Diwali, as consumers ignore the surge in prices witnessed in recent weeks.

Gold prices surged to a five-year high last week at Mumbai’s Zaveri Bazaar, in line with the surge in global markets, and also because of the huge demand within the country.

Standard gold (22 carat) almost touched the Rs32,000 mark (for 10 grams) in the spot bullion market last week. Traders said there was robust sentiment in the market at the end of the fortnight-long period of mourning (Pitru Paksha, which is observed by many Hindus, who pay homage to their departed elders and do not spend on gold).

While international gold prices have come down by almost 10pc, in India prices have gone up by 14pc

Even internationally, gold prices have touched a three-month high, peaking at $1,231 an ounce, as differences between China (the world’s largest buyer of gold) and the US (the third-largest after China and India) continues to accelerate leading to an intensification of the trade war.

Many investors around the world are selling shares and buying gold, resulting in a spurt in the price of the yellow metal.

India’s gold imports have dropped by 15 per cent to 552.8 tonnes during the January-September nine-month period in 2018, according to a report by precious metals consultancy, GFMS. India usually imports between 800 and 850 tonnes of gold every year, with 60pc of it being bought by people in rural areas.

Analysts expect India’s gold imports to perk up by nearly 10pc in the last quarter of the year to touch 250 tonnes.

According to World Gold Council (WGC) data, there’s a rush for gold purchases in the last three months of the year, when it coincides with festivals like Dassera and Diwali, and also sees a lot of weddings. In the last four years, it has averaged 240 tonnes during the October-December quarter.

Nitin Khandelwal, chairman, All India Gem and Jewellery Domestic Council, admits that while demand was low this year, it is expected to perk up over the coming days, especially with Diwali and the marriage season ahead.

The WGC also sees demand rise in the last quarter of 2018. But the year is ultimately going to be a subdued one, with sales in the range of 700 to 800 tonnes, says Somasundaram PR, managing director of WGC India.

According to him, there is no specific catalyst to drive demand in India. While international gold prices have come down by almost 10pc, in India prices have gone up by 14pc. The WGC, however, expects gold demand to pick up gradually and almost touch the 900 tonne mark by 2020.

WITH the Indian rupee having declined sharply by 15pc this year — it was trading at around Rs74 to the dollar last week — gold jewellers feared a sharp hike in import duties on the yellow metal.

But last month the government decided not to raise taxes on imports of gold — which adds up to a hefty $34 billion — and left the 10pc rate untouched, much to the relief of jewellers and buyers.

There were fears that the government might intervene to prevent resurgence in gold smuggling into the country. Whenever gold prices climb sharply in India, there is speculation about a possible surge in smuggling.

Last year around the time of Diwali, for instance, there was a hefty 250pc jump in gold smuggling because of sharp variations in the price of the yellow metal. While the rate in India was around Rs30,000 for a 10 gram, 24 carat gold bar; in Dubai it was cheaper by about Rs3,000.

Estimates were that 120 tonnes of gold was smuggled into the country last fiscal. This year too, the powerful lobby is expected to try smuggling in a similar quantity of the yellow metal into India.

The Indian government imposed a 10pc duty on gold imports in 2013 and last year added another three per cent sales tax component. Naturally, there were fears that with the sharp fall in the value of the rupee the government might consider raising the duty on gold imports.

Incidentally, in a bid to curb gold imports and also to lower the current account deficit, the Indian government earlier this month launched its Sovereign Gold Bond Scheme.

The scheme offers the same benefits as the earlier one — an interest of 2.5pc and capital gains tax exemption redemption. The bond will have a tenor of eight years, with exit options available in the fifth, sixth and seventh year.

The WGC has also cautioned the government to refrain from imposing restrictions in gold trade. According to Mr Somasundaram, the huge current account deficit in India is because of the high cost of imported oil and the rupee depreciation.

“It has nothing to do with people buying gold,” he says. “We hope that such curbs do not happen now because it will lead to the development of a grey market and will derail all the reforms that are being planned.”

While consumers and the trade are battling the rise in the price of gold, exporters are having a good time. The outbound shipment of gold jewellery, coins and medallions amounted to $5.32bn between April and August this year, as against $4.28bn during the same period last year.

Published in Dawn, The Business and Finance Weekly, October 22nd, 2018