A red light in Beijing has switched on the green light in the Indian gold market. A pause in the gold buying spree by the Chinese central bank has triggered a decline in the price of gold that has prompted buyers of the precious metal to gradually return to the market. Strong hiring in the US in May also helped the turn of events by helping defer a rate cut by the US central bank and thereby make the dollar stronger.
Too expensive
Recently, The People’s Bank of China (PBoC) emerged as the largest institutional buyer of gold in the world. It purchased as much as 225 tonnes of the precious metal in 2023 – 14 times more than what Reserve Bank of India did in the same year – and became substantially responsible for pushing up the price of the yellow metal.
PBoC applied brakes on its programme to buy gold in April this year when prices reached the peak and paused purchases in May. While it bought 3.9 lakh ounces in February, the quantity dipped by almost 59% to 1.6 lakh ounces in March.
Rising prices forced the Chinese bank to buy only 0.6 lakh ounces in April before completely halting it the next month. The pause in May was a break after continuously buying gold for 18 consecutive months.
In April, the gold industry was complaining about record prices of the metal deterring customers. President of the All India Jewellers and Goldsmith Federation, Pankaj Arora, told the media that sales had gone down by about 90% and only those who had gold fit to exchange were coming to buy jewellery.
Hiring in the US
However, the Chinese bank’s halt in purchase significantly changed the situation. A strong US job data also sent the signal in the market that the US central bank, the Federal Reserve won’t immediately cut interest rates that, in turn, helped the US dollar and yields on treasury bonds to rise. As a cumulative effect, the gold prices fell about 4.5% from the high levels of Rs 74,222/10 grams. The price is now inching close to the psychological Rs 70,000 mark.
Major jewellers such as Senco Gold & Diamonds, PNG Jewellers, Joyalukkas have revealed to the media that both visits to the store and demand have risen by an extent ranging from 10% to 10%.
A section of consumers has also invested in bars and coins to exploit profit-making opportunities.
Suvankar Sen, MD of Kolkata-based Senco Gold & Diamonds said in the past one week, there has been a 15% rise in demand. “The gold price fall has encouraged buyers to return to the store and start their wedding shopping. They fear that prices may move up, so they are buying gold in advance,” Sen told the media.
Joyalukkas CEO Baby George, too, has echoed Sen in quantifying the rise in demand.
Buying for the wedding season ahead before prices rise again is also one of the drivers.
China to resume
Those apprehending a price rise of gold again are not wrong. For one, analysts are of the opinion that the Chinese bank’s pause is temporary and it will again resume purchases as soon as the price of the metal comes down.
The CEO of the World Gold Council, David Tait, has recently told the media in Singapore that the Chinese central bank would start buying again when the price hits $2,200 per ounce mark.
Gold prices have shot through to the roof scaring away buyers from the market in the past two months. However, a pause in bulk purchase of the metal by China and robust hiring activity in the US have triggered a fall, bringing retail buyers back. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
