India’s gold market in October: Indian retail demand
improved but still lower y-o-ye
03 December 2020
Summary
The domestic gold price
ended the month 29.6% higher y-t-d at Rs50,645/10g1
The economic recovery
gained momentum in October but concerns remained over its sustainability
Retail gold demand
improved in October due to a lower gold price and Navratri sales but demand was
lower y-o-y due to the higher gold price and impact on incomes due to COVID-192
Demand for safe-haven
assets and strong y-t-d performance (+29.6%) supported gold ETF flows. Total
holdings for Indian gold ETFs reached 27.6t by the end of October; a net inflow
of 0.7t during the month
The Reserve Bank of
India (RBI) added 35.1t of gold y-t-d in 2020.e
Economic recovery momentum
strengthened
Daily new COVID-19 cases
averaged ~62,000 during the month, down from ~87,000 in September. With lower
daily infections lockdown restrictions were eased throughout India, helping the
economy recover (Chart 1).
As restrictions eased,
pent-up demand was released and several high frequency indicators started to
show a recovery in economic activity:
India’s manufacturing
purchasing managers’ index (PMI) rose to 58.9, its highest level since January
2012, due to a sharp pick-up in manufacturing to meet the backlog and fulfil
new orders
Power demand was 12.1%
higher y-o-y
Railway tonnage movement
was 15.2% higher y-o-y
Retail sales of
tractors improved – 55.5% higher y-o-y
Average daily E-Way
bills generated rose – 17.4% higher y-o-y3
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_1.jpg
With an improvement in
economic activity, GST collection for the month of September touched an eight
month high at INR 1.05tn (10.2% higher y-o-y), reaching a pre-COVID level of
GST collection last seen in February
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_2.jpg
he improvement in high
frequency indicators bodes well for the economy, however investors remain
cautious on the sustainability of this growth due to concerns that it has been
skewed towards manufacturing or led by festival season demand (from October to
December).
Retail demand improved in
October but remained weak y-o-y
Retail demand improved
following muted sales in September. The month got off to a slow start due to
Adhik Maas – considered to be inauspicious for gold purchases – before picking
up mid-month ahead of the Navratri festival. This seasonal demand, as well as a
lower average gold price of Rs50,700/10gm (-0.4% lower m-o-m), supported gold
sales. However, the average gold price in October was still 32.4% higher y-o-y,
impacting retail gold demand compared to October 2019 (~25-30% lower in volume
terms).
Focusing on Navratri sales,
jewellers in the southern states of Tamilnadu and Karnataka reported marginally
higher volume sales in the range of 5% to 15% y-o-y. A prominent southern-based
retailer reported 12.5% y-o-y gold jewellery sales growth during October due to
a lower gold price and Navratri sales. Retailers in tier 2 and tier 3 cities
with strong rural demand also reported better sales during Navratri (Figure 1).
In other states, including Gujarat, Maharashtra, Delhi and West Bengal,
retailers reported more muted sales during Navratri, with 30-40% lower volume
y-o-y. Retailers here reported that sales had primarily been impacted by a
higher gold price and lower consumer income resulting from the impact of
COVID-19. As a result, the overall volume of gold sales during Navratri was
lower y-o-y.
Safe haven demand and high
y-t-d returns on gold attracted inflows into gold ETFs in October
Indian gold ETFs saw
inflows during the month, the seventh consecutive month of AUM growth. This was
supported by safe haven demand and strong returns on gold y-t-d (29.6%). Gold
has outperformed the BSE SENSEX (-2.8%) and 10-year government bonds (10.6%),
supporting gold’s appeal as an asset.5 However, the net inflows of US$42.8mn
were 40% lower m-o-m as some investors switched into equities (BSE SENSEX: +
4.1% m-o-m) as the economy improved and optimism grew over a potential
coronavirus vaccine. Against such a backdrop, net inflows into Indian
gold-backed ETFs were 0.7t during October, pushing total gold holdings to 27.6t
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_3.jpg
Local markets was back in
premia as retail demand improved ahead of Navratri
Local discount narrowed
from US$40/oz to US$3/oz during September due to a gradual revival in retail
demand and stocking by jewellers ahead of Navratri and the upcoming wedding
season. Despite this, the local gold price was back in premium by mid-October,
just ahead of the Navratri festival, with the average premium remaining at ~
US$2/oz during the second half of October
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_4.jpg
India imported 40.9t of gold
in October
Indian official gold
imports recovered to 40.9t in October, four times higher than the 9.2t seen in
September. But y-t-d, gold imports remain very weak – 58% lower than the same
period in 2019 (Chart 5). A total of nine banks, nominated agencies and
exporters imported 24.3t of bullion during the month, and 17 refineries
imported 16.3t of gold doré (fine gold content).
Looking at import data in
October, ~66% of the official imports landed in India during the last two weeks
of the month when the retail demand improved ahead of the Navratri festival.
Further, out of a total of 40.9t official imports, 11.5t were imported in Sri
City Free Trade Warehousing Zone (FTWZ).6 These imports landed in FTWZ with an
expectation of recovery in demand at the beginning of the festival season –
from Navratri in October to Dhanteras in November, as well as the wedding
season.
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_5.jpg
RBI added 35.1t of gold
reserves in 2020
The RBI purchased an
additional 1.9t in October, bringing y-t-d purchases to 35.1t and taking its
total gold reserves to 670.1t – 7.2% of total reserves (Chart 6).7 The RBI has
stepped up its gold purchases with the aim of diversifying its foreign reserves
and maintaining the safety and liquidity of its forex reserves.
https://www.gold.org/sites/default/files/2020-12/mukesh_chart_6.jpg
Footnotes
1As of 30 October 2020.
2 Navratri is an annual
Hindu festival which spans nine nights and is celebrated as a mark of victory
of good over evil. Navratri was celebrated in India from 17 October to 25
October.
3 E-Way bill is an
electronic way bill for movement of goods generated on the E-Way bill portal. A
GST registered person cannot transport goods valued more than Rs50,000 (single
invoice/bill/delivery challan) in a vehicle without an E-Way bill that is
generated on ewaybillgst.gov.in.; https://cleartax.in/s/eway-bill-gst-rules-compliance
4 GST collection data
reported on 1 October 2020 is for the GST collection in the month of September.
GST data is published on the first day of every month for the GST collected in
the previous month.
5 As of 30 October 2020.
Computations in Indian Rupee of total return indices for BSE Sensex and S&P
BSE India Government Bond Index. For domestic gold price MCX India Gold Spot
Index is considered.
6 FTWZ offers a distinct
advantage as overseas suppliers can import gold into the custom-bonded warehouse
of FTWZ without paying customs duty for authorised operations. Imported gold
can be stored in FTWZ for a long period – as long as the letter of approval
(LOA) is valid – thus reducing the logistics time in supplying to the domestic
market as compared to importing from the overseas market.
7 Central Bank data is
taken from IMF-IFS. IFS up until September and weekly statistics have been
taken from RBI for October. Please refer to our latest Central Bank Statistics https://www.gold.org/goldhub/data/monthly-central-bank-statisticse
Source: https://www.gold.org/goldhub/gold-focus/2020/12/india-gold-market-october-indian-retail-demand-improved-still-lower-y