5

Nov

Gold Rush on Global Scale Reflects A broader Trend

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Prof Shivaji Sarkar

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New Delhi | Tuesday | 5 November 2024

In a striking move to safeguard national wealth, India has repatriated 214 tons of gold from the vaults of England, a signal of heightened concern over escalating geopolitical tensions and looming sanctions. This shift reflects a broader trend, with central banks globally ramping up their gold purchases.

In May alone, India recalled 100 tons from the Bank of England, reinforcing a strategy to shield assets amid global uncertainty. Now, as global gold prices soar toward a potential $3,000 per ounce, the world is watching closely, with India emerging as a key player in the race to secure precious metals in these volatile times.

The government of India has decided to prioritize protecting its assets in the face of global geopolitical unrest. About 100 tons were returned from the Bank of England in May. A total of 324.01 metric tons of gold were held in the custody of the Bank for International Settlements (BIS) and the Bank of England, while 510.46 metric tonnes were retained domestically. Additionally, 20.26 metric tons of gold were stored as deposits.

The gold in the world market is projected to rise to $ 3000 per ounce, according to Goldman Sachs.

Article at a Glance

In a strategic move to protect its national wealth amid rising geopolitical tensions, India has repatriated 214 tons of gold from England. This decision, reflecting a global trend of increased central bank gold purchases, comes as global gold prices approach $3,000 per ounce. India previously recalled 100 tons in May and currently holds 854.73 metric tons of gold across domestic and foreign repositories.

Despite a robust demand for gold, which has seen prices soar, India's gold consumption is expected to decline to its lowest in four years, with projections of 700 to 750 metric tons for 2024. The rising gold prices and a widening trade deficit could further pressure the Indian rupee.

Additionally, consumer spending during the Diwali season reached approximately Rs 1.25 lakh crore, indicating resilience despite economic concerns, while online shopping gained significant traction. Overall, India's gold strategy highlights its cautious approach amid a complex global landscape.

The Diwali 2024 market sparkle appears subdued for several reasons despite cracker sales going back almost to the fuzzy pre-ban eras of the National Green Tribunal. The traditional gold sales could not touch previous years' highs as the metal was priced at around Rs 78,430, almost 30 per cent higher than last year.  “Silver sales rose 33 per cent, while gold volume fell by 15%,” according to the Indian Bullion and Jewellers Association. The market is stated to be as dizzy as it was in 2015 or 2019, the years marked by slowdown.

In its report titled "43rd Half Yearly Report on Management of Foreign Exchange Reserves: April - September 2024," the RBI stated that it had a total of 854.73 metric tons of gold in both domestic and foreign repository facilities. The RBI has been buying gold to diversify its forex reserves and hedge against external risks. In 2024, the RBI added 54.7 tons of gold to its reserves, the highest acquisition in three years.

After the Ukraine war, $ 300 billion worth of Russian currency and other assets, kept as reserves in US dollar, Euro and sterling pound, were seized by the US and the G7 countries. The assets are being used to bolster funding arms and other supplies to Ukraine.

India has since acted cautiously even in deals with the purchase of Russian crude. The recent spat with Canada and the US-Israel escalation of war to Lebanon and Iran has added to the caution. This forced the repatriation of gold by RBI, which has been purchasing gold and stocking it abroad for payments in terms of gold instead of dollars. The RBI saves huge amounts in terms of vault rents as well.

Robust demand in the world's second-biggest gold consumer could further push up global prices, which hit record highs last week. Rising demand for imports of gold could also widen India's trade deficit and put pressure on the rupee. Yes, India's gold purchases have contributed to rising global gold prices.

India's gold demand in 2024 is likely to fall to its lowest in four years as a rally in prices to a record high is seen denting purchases during the peak festival season, the World Gold Council (WGC) said on Wednesday.

Gold demand in the world's second-biggest consumer of the precious metal could stand around 700 and 750 metric tons in 2024, the lowest since 2020 and down from last year's 761 tons, according to Sachin Jain, CEO of WGC's Indian operations. This Dhanteras, gold sales dipped in India to 35 tons, down from last year's 42 tons.

Gold has risen to multiple all-time highs this year. Sizable central bank purchases of gold bars have reset the relationship between rate and price levels since 2022. Goldman Sachs Research estimates that 100 tonnes of physical demand lift gold prices by at least 2.4 per cent.

Credit card usage also hit new highs, with card spending reaching Rs 80,000 crore in September, a 57 per cent increase from last year.

The retail mom-and-pop shops have problems as the footfall was subdued due to many turning to online shopping. Both Amazon and Flipkart reported a strong Diwali season, with Flipkart leading with a 64 per cent market share during the initial October sales. Sales from online platforms saw year-on-year growth of 23 per cent, with goods worth Rs 32,000 crore sold.

More are BNPL or Buy Now Pay Later customers, or paying in instalments helped by credit cards, indicating a cash shortage among the people. This trend was especially pronounced among new shoppers from tier 2 and tier 3 cities.

Car sales have suffered during most of the year before just marginally picking up during the Dussehra and Diwali festive seasons. Maruti profits lowered to Rs 3102 crore in September, by 18 per cent, as against Rs 3762 crore a year ago. Maruti CEO RC Bhargava says “Affordability is a concern”. The demand for cars below Rs 10 lakh is in demand. Small cars inventory levels hit a “historic high” of 80-85 days, leaving dealers with a stock of 790,000 vehicles worth 800 billion rupees, the Federation of Automobile Dealers Associations say.

Despite high inflation, Indian consumers opened their wallets wide this Diwali season, pushing festival-related spending to about Rs 1.25 lakh crore, claimed Confederation of All India Traders (CAIT) general secretary Pravin Khandelwal. Delhi alone saw spending of Rs 25,000 crore, including FMCG goods, consumer durables and home décor earthen lamps and electronic goods, traditional and modern products, he says.

Mobile phones in the below Rs 20,000 range had brisk sales. Mobile phones were among the hottest sellers this season, with a 12-15 per cent rise in the average selling price, driven partly by a shortage in device availability. This scarcity led to consumers grabbing whatever stock was available, increasing the average price of phones sold.

Rising gold and commodity prices, a fall in rupee value, crunch in income and manufacturing are concerns amid a global unstable war-like situation.

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