Gold demand rises, takes suppliers by surprise

Gold demand rises, takes suppliers by surprise

Mumbai: Demand for gold in the world’s biggest consumer is picking up ahead of festivals that begin next month, but an earlier-than expected spurt in buying has led to a supply glitch as overseas sellers are understocked, bankers said.

Demand for the precious metal is subdued during June and July as rural consumers, who account for 65% of India’s total gold consumption, prefer to divert funds to buy seeds and fertilizer during the sowing season.

However, a sharp drop in prices as a result of weak US inflation numbers triggered buying, taking sellers by surprise.

“A couple of them are now taking seven days to supply gold, this problem exists with some of them, so we prefer to buy from those who will deliver us promptly," said a official with a state-run bank dealing in bullion.

Indian gold demand is set to pick-up for the festivals, starting with Raksha Bandhan on 24 August, and extending till Dhanteras in November, the single-biggest gold buying day.

“There was less demand in May and June, but due to a price fall in July demand rebounded, creating supply constraints," said another official from the state-run bank, which imported 40 tonnes of gold in the last fiscal year.

Gold struck a two-month low on $1,175.35 an ounce on 20 July, a level last seen on 21 May, prompting traders to stock for the upcoming festivals. The yellow metal was trading at $1,197.35/1,198.35 on Friday.

“Monsoon time sees lower inventory levels with suppliers, but this sizeable correction created demand in the market, which suppliers and refiners were not ready for," Pinakin Vyas, assistant vice president treasury with IndusInd Bank, a large gold importer.

Gold demand picked up on a good note at the beginning of the year but slackened as the year progressed with gold prices hitting all-time high of Rs19,198 on 8 June.

This year analysts forecast higher prices at the end of third quarter on the back of heavy buying overseas on concerns about economy, with Indian prices following suit.

“The demand has been good even before festivals and buyers are very receptive at lower levels, if prices sustains these lower levels below $1,180-1,190, I see the current trend going ahead," said Lokesh Kumar Agarwal, chairman, Brijwasi Bullions and Jewellers, which caters to markets in Uttar Pradesh and Bihar.

On Friday, gold on Multi Commodity Exchange (MCX) was at Rs18,345 per 10 grams, up more than 22% on year.