Consumers hesitant to buy precious metal on fluctuating prices, inauspicious period in Hindu calendar, says WGC

The discount at which domestic gold is trading to international prices has increased to $15 an ounce from an average of $4 since December due to subdued demand, a World Gold Council expert has said. “The subdued demand environment was reflected in the spread between domestic and international prices… Consumers have been hesitant about buying gold jewellery due to high and fluctuating prices and the inauspicious period in the Hindu calendar, which runs from mid-December to mid-January,” said WGC research head Kavita Chacko in an update on the gold market.

Currently, buying has primarily been wedding-related. But anecdotal market reports point out that physical investment demand for bars and coins has been sustained, emphasising gold’s investment appeal, she said.

Dec ETF inflow ?640 crore
In December, net inflows into gold exchange-traded funds continued for the eighth month in a row in December. However, they were the lowest since 2024.

The inflows were affected by the decline in the precious metal’s prices, said Chacko, adding that however, ongoing volatility in equity markets, coupled with the general bullish sentiments surrounding gold, continued to support investor demand.

According to the Association of Mutual Funds in India (AMFI), gold ETFs recorded net inflows of ?640 crore in December, down nearly 50 per cent from November. It was 32 per cent lower than the average monthly inflows of ?940 crore for the year.

The WGC research head said investor demand for gold ETFs surged in 2024, attracting net inflows of ?11,200 crore, the strongest annual inflow on record and nearly four times higher than the previous year.

RBI pauses
Assets under management (AUM) grew 63 per cent year-on-year to touch, ?44,600 crore. She said 15 tonnes were added to gold holdings during the year, bringing the collective holdings to 57.8 tonnes and marking a 35 per cent year-on-year increase.

In 2024, three new gold ETFs were launched in the country, bringing the total number of physically-backed funds available in the local market to 18.

The Reserve Bank of India (RBI) paused its purchases of the yellow metal in December. It accumulated 72.6 tonnes of the precious metal in 2024. RBI now has 876 tonnes of gold in its reserves. In 2023, the apex bank bought 16.2 tonnes. Purchases last year were the highest since 2001 and the precious metal makes up 10.6 per cent of RBI forex reserves, Chacko said.

The WGC research head said strong momentum in gold prices, global uncertainties, favourable tax revisions in the Budget in July, volatility in domestic equity markets, and the inherent transparency, liquidity and ease of transactions collectively drove investor interest towards ETFs.

Contributory factor
A spike in inflows into multi-asset funds, which invest in gold ETFs, has been a contributing factor. These funds saw their net inflows nearly double to ?42,500 crore, with the market value of their gold ETF investment increasing by 97 per cent year-on-year.

The precious metal emerged as the country’s top-performing asset class, giving a 21 per cent return in 2024 despite a moderation in prices during November-December. However, the return on the rupee was lower than on the dollar.

Gold has started the year on a strong note, topping $2,700 an ounce. It has gained nearly 3 per cent, partly recouping its losses in November and December.

Global uncertainties continue to support prices. There has been a similar increase in rupee terms too, Chacko said.

During the weekend, gold (999 fineness) was quoted at ?79,240 per 10 gm, while gold for jewellery (916 fineness) ruled at ?72,580, per Indian Bullion and Jewellers Association.

Courtesy : The Hindu Business Line