Gold has long been a favoured asset in India, particularly during times of economic and political uncertainty. As the world's second-largest consumer of gold, India's demand for the precious metal often serves as a barometer for the global market.
According to Chirag Mehta, Senior Fund Manager at Quantum Asset Management Company, the country is gearing up for strong demand ahead of the 2024 elections.
“Overall, gold demand will increase because there will be volatility in risk assets. That volatility would bring buyers into gold… we are seeing a good positive year from a demand perspective. This is a pre-election year and given that the rural economy has not been doing well, if we have a good harvest and some support from the government, there could be increased demand from rural India as well,” he said.
Also Read | Swiss Asia Capital expects gold prices to hit new highs soon, calls it an 'attractive asset'
In a recent interview with CNBC-TV18, Mehta noted that the monsoon can play a significant role in determining gold demand. This is because a good monsoon season can boost agricultural output, which in turn, can increase the purchasing power of rural communities. As a result, gold prices may experience an uptick as people look to invest in tangible assets.
Mehta also pointed out that gold could see buying from rural India as well. This is because the agriculture sector is a significant contributor to India's economy, with many rural households relying on farming for their livelihood. As a result, any increase in disposable income could translate into higher demand for gold.
However, Mehta remained conservative on gold in 2023. He cautioned that while demand may be strong in the short term, it is difficult to predict how the market will behave in the long run. This sentiment is echoed by the recent outflows from gold ETFs over the past three months, which may suggest that some investors are taking a more cautious approach to the precious metal.
According to P.R. Somasundaram, Managing Director of the World Gold Council, India will to continue to buy gold in the range of 800-850 tonnes this year despite fluctuations in the price of gold.
He said the demand for gold will not be affected by fluctuations in price. While it is true that the price of gold can affect immediate buying decisions, the overall demand for gold in India remains high.
“This year I expect India to continue to buy gold, regardless of how prices move. This year is going to be driven more by growth. Prices do tend to affect immediate buying decision but overall you will see 800-850 tonnes demand this year,” he said.
Peter McGuire, CEO at XM Australia, felt that there is going to be a lot of volatility coming across the forex space, which will create a sizeable move across commodities and certainly the precious metals.
Despite these uncertainties, it is clear that gold remains a critical asset in India. With the country's elections approaching and the monsoon season on the horizon, demand for the precious metal is expected to remain robust. And as always, investors will be keeping a close eye on the market to see how prices move in the coming months.
This week, particularly, is crucial for gold as the Reserve Bank of India (RBI) has launched the last tranche of Sovereign Gold Bond (SGB) scheme for FY23. The series is open for subscription from March 6-10. The issue price is fixed at Rs 5,611 per gram of gold. SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash, and the bonds are redeemed in cash on maturity.
On the global front too, the demand for gold has grown by 18 percent in the previous year at around 4,742 tonnes, which has been the highest since 2011, as per World Gold Council.
For more details, watch the accompanying video
