India’s gold demand stalls as prices spike, futures trade at discount amid volatility

Hobbled by surging prices in the past week, Indian gold jewellery buyers have tightened their purse-strings in the hope that prices will ease in the coming weeks ahead of auspicious gold buying occasions. This has come at a time of unbridled volatility in global financial markets, with questions being raised over the dollar’s pre-eminence as a safe-haven asset.

The drop in demand, estimated at 40-50% across industry by certain quarters, was brought on by the prices of the yellow metal shooting up more than 6% last week and 30% in the past year, according to data from Bloomberg. To be sure, jewellery companies are hopeful that the demand drop will be offset by the rise in prices.

The drop in demand for gold is reflected in Indian gold futures trading at a discount to the bank rate in the past week through Friday.

The gold contract at MCX, the country’s largest commodity derivatives exchange, traded at ₹93,375 per 10 gm as of 5:10 pm IST Monday, according to exchange data. The price includes 6% customs duty but excludes 3% GST.

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The bank rate, which includes the tariff and bank premium, stood at ₹93,915 per 10 gm, per Amit Modak, chief executive officer of PNG Sons, implying that MCX gold contracts traded at a discount of ₹540 per 10 gm.

As the MCX active futures price is derived from rates prevailing across the domestic physical market, the discount to the bank rate implies slow consumer demand because of the spike in prices in the past week, according to Saurabh Gadgil, managing director of the listed PN Gadgil Jewellers.

“Demand currently is down around 15-20% in grammage terms at our stores from the same time last year but the spike in gold prices will ensure that in value terms there will be an offsetting impact,” explained Gadgil.

Renisha Chainani, business head of integrated gold player Augmont, said the spike in prices last week following the global trade uncertainty had caused customers to adopt a “wait and see” mode.

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“They believe prices could correct and prefer waiting for another week or so before deciding to buy amid the ongoing wedding season and the auspicious period of Akshaya Tritiya falling on 30 April,” said Chainani.

During 4-11 April, gold active futures surged 6% to ₹93,745 per 10 gm, taking the one-year price rise to 30% following the US’s imposition of reciprocal tariffs on all its trading partners on 9 April, only to pause them for three months hours later for all countries barring China.

The pause on tariffs was necessitated by surging bond yields as hedge funds with leverage began offloading US treasuries and a falling dollar.

Indeed, the 10-year bond yield spiked 49 basis points (1 bps is one-hundredth of a percentage point) to 4.48% last week (4-11 April), as a global trade war stoked concerns of a recession in the US and the global economy over the next 12 months.

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The dollar index, which measures the US dollar against six leading currencies such as euro and yen, plunged almost 3% to 100.10 last week. This was seen as an anomaly as the dollar is considered the ultimate safe haven at a time of rising global financial uncertainty. This caused gold prices to spike last week.

Surendra Mehta, national secretary of nodal trade body India Bullion and Jewellers Association (IBJA), said the spike in prices has caused demand across the industry to fall by an estimated 40-50% so far this month from the same period last year.

While stock exchanges in India were closed Monday for Dr Baba Saheb Ambedkar Jayanti, commodity exchange MCX was opened for the evening session, which runs from 5 pm to 11:30 pm/11.55 pm (daylight savings). The normal trade timings are 9 am to 11:30/11:55 pm from Monday to Friday.

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