With very little mining and modest levels of recycling, India is heavily reliant on bullion imports to meet its domestic demand. Indian official imports have continued to grow despite high import duty with official imports averaging 760t over the last decade.
Gold rose 2% in November based on the LBMA reference price, rallying early in the month before giving up most of those gains in the following weeks.
Gold has long been valued for its distinctive investment benefits. Although gold is no longer the basis of the international monetary system, its status as a bastion of stability has endured, a role which has become ever more important in today’s uncertain environment.
Together with our partners at OMFIF, we have written a report on the development of central bank digital currencies (CBDCs) and the implications for the gold market. CBDCs can potentially enable a wide range of new features. Money can become programmable, allowing policymakers to incentivise certain spending behaviours that can optimise economic impact or address social concerns. The trackable nature of CBDCs can also help to deter financial crimes. The ability to easily deploy “helicopter money” may also spark concerns about inflation.
Gold rose slightly in October, despite a risk-on environment and increases in short-term bond yields
Q3 gold demand down 7% to 831t
ETF outflows outweighed continued recovery in other sectors
Econometric analysis shows that rising income is the most powerful driver of Indian gold demand in the long term. This bodes well for gold demand as the economy is set to benefit from a demographic dividend: the IMF forecasts per capita GDP growth of 23% between 2022 and 2026.
We believe that mandatory hallmarking will be positive for India’s gold market, improving transparency and giving consumers more confidence in the purity of the gold they buy.
Over the past two months, economic growth has disappointed even as inflation has exceeded expectations. A real risk of stagflation, with rising costs amid lower growth, appears to be on the cards.
Gold fell in September by 4% to around US$1,743/oz. This was the second consecutive month of declines, with gold now over 8% lower y-t-d. Gold wasn’t alone. Treasuries, Corporates, US- and non-US equities all fell in September possibly as a result of deleveraging. The Q2 level of margin debt for equities was at a record high. It would be understandable if some leverage has been removed as we head into the historically volatile month of October. And it’s quite possible that this de-leveraging has affected most assets (energy and industrial metals excepted).