By K Raveendran
The renewed escalation of the Israel-Palestine conflict is providing additional impetus for gold to climb higher levels. The yellow metal has already been trending higher over the past two months, but the end of truce between Hamas and Israeli forces, unleashing new bomb attacks and destruction of lives and properties, particularly on the Palestine side, is continuing to fuel risk aversion and investor concerns, leading to further gains in gold prices.
Also contributing to the bullish mood are indications from the United States that the Federal Reserve has probably reached the end of its monetary tightening phase and may well be ready to start cutting interest rates form March next year. The end of monetary tightening is considered a milestone in the investment scenario, particularly for gold as well as other investment options.
The spot gold price climbed to $2,069.10 per ounce in the last trading session, marking an increase of 3.4 percent so far for the week after it rose to $2,075.09 to beat the previous all-time high of $2,072.49 scaled in 2020, according to Reuters. Indian gold prices hit a record high of 62,675 rupees per 10 grams this week, rising more than 11 percent in two months.
Wall Street feels there is conclusive evidence that inflation has come down more rapidly than the Fed was expecting and that means that policymakers are likely to effect more cuts compared to what was the scenario in September. The domestic trade, however, feels the international rally could be limited in the coming months unless there is a major event that supports the metal. Higher gold prices in turn mean lower footfalls at the jewellery shops.
The third quarter jewellery sales in India had shown an unexpected upside, thanks to the solid growth in economic activity. In fact, the World Gold Council had said in its third quarter review that it slightly underestimated the strength of jewellery demand and that it was revising the fourth quarter estimate, although it acknowledged that the strong increase in local prices would curtail some growth. To a certain extent, India had bucked the trend of lower sales elsewhere, thanks to high economic uncertainty in most parts of the world. In fact, the increase in jewellery sales in India was offset by Growth in India was fully offset by declines in China, which saw a disappointing third quarter as consumers were reluctant to buy in the face of the very high local price premium, which raising expectations of a price correction.
Indian jewellery demand was up 7 percent to156 tonnes, clocking an increase of 19 percent over its five-year average of 130 tonnes. However, the market was generally perceived to be weaker as record local gold prices deterred consumers.
During the third quarter, the correction in the local gold price from record highs, combined with the festive season in south India, were the two major drivers of growth. After a fairly soft start to the quarter, in part due to Adhik Maas, which is viewed as inauspicious for making new purchases, August and September witnessed a pick-up in activity thanks to festivals such as Onam and Varalakshmi. Festive purchases helped south India outperform other regions. By contrast, north India was the weakest and saw a year-on-year decline, partly reflecting a weaker rural sector and a relative lack of major festivals during the quarter.
According to the World Gold Council, lower-carat, such as 18K and 14K jewellery, has gained popularity in the face of an elevated gold price and has benefited from retailers promoting these higher-margin products. On a relative basis, large retailers have continued to perform well, reaping rewards from their aggressive marketing campaigns.
Jewellery fabrication jumped 9 percent to 199 tonnes, the highest third quarter figure since 2015. Lower gold prices, continued retail network expansion, and the anticipation of a good wedding and festive season led to this jump, with retailers stocking up in preparation.
According to the council, India’s outlook remains healthy, although with an element of caution. The seasonal boost in festive and wedding purchases should help release pent-up demand, particularly after a relatively weak first half. But if the sharply higher current prices persist demand maybe constrained. (IPA Service)