New Delhi: India's gold market is experiencing unprecedented activity as the nation approaches its most auspicious festivals Dhanteras and Diwali. This surge in demand has driven gold premiums to their highest levels in over a decade.
Spot gold prices have surpassed $4,300 per ounce, marking a significant increase from previous levels. In India, domestic gold prices have reached a record high of 131,699 rupees per 10 grams. Consequently, dealers are quoting premiums of up to $25 per ounce over official domestic prices, inclusive of import and sales levies, compared to $15 the previous week. This sharp rise in premiums reflects heightened demand and supply constraints in the market.
The festive season has traditionally been a period of increased gold consumption in India, with many considering gold purchases as auspicious during this time. Despite the high prices, investor interest remains robust, with many opting for small denomination coins and bars. Jewellers are stocking up in anticipation of the upcoming festivals, although overall jewellery demand remains subdued due to the elevated prices.
The escalating gold prices have also led to a significant increase in gold smuggling activities. Smugglers are capitalizing on the high premiums, with margins exceeding 1.15 million rupees per kilogram by evading duties and taxes. Authorities have reported a rise in smuggling cases, with multiple attempts foiled at airports. Despite previous reductions in import duties, the allure of substantial profits continues to drive illegal gold imports.
Several global factors are contributing to the current dynamics in the gold market. Renewed U.S.-China trade tensions and expectations of a U.S. Federal Reserve interest rate cut have increased investor appetite for safe-haven assets like gold. These factors have led to a surge in gold prices globally, influencing domestic markets in countries like India.
As India approaches its peak festive season, the gold market is expected to remain volatile. While high premiums may deter some consumers, the cultural significance of gold during festivals ensures sustained demand. Simultaneously, the surge in smuggling activities poses challenges for authorities in regulating the market. The interplay of domestic demand and global economic factors will continue to shape the trajectory of gold prices in the coming weeks.