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The price of gold recently reached the lowest level in two months, with the result that more gold is being bought in India. This is evident from the increase in the premium from $10 to $13 compared to the international gold price. Summer is traditionally a somewhat weaker period for the gold market and that also applies to India. In that country, people mainly buy gold on the occasion of festivals and that season only starts again in the autumn.
Today India celebrates the birthday of Ganesha, god of wisdom. In the west of India, this is celebrated in a big way and that means that Indians in the run-up to this holiday Buy gold. The recent increase in the value of the rupee also helps, because it has made gold relatively cheaper for the Indian population.
According to Prithviraj Kothari of the India Bullion and Jewellers Association, gold imports in the month of August are likely to reach 40 tonnes. For the month of September, Kothari expects a recovery to the import volume of the month of June, when about 70 tonnes were imported.
Recently, the premium on gold has increased again, an indicator that demand for the precious metal is picking up again. Last year, the premium on gold in India rose to a record high, because the government could not import enough gold. In February, they paid more than $100 per troy ounce on top of the gold price, but that premium dropped back to about $60 in May. This decrease was the result of a relaxation of the rules regarding the import of gold. Where the previous government of India pursued an anti-gold policy, the new government is a lot milder.
By June, the shortages had disappeared and gold was trading at the international price again in India. Relatively weak demand for gold also contributed to a decline in the premium. Now that the gold market in India is picking up again, the premium is rising again, although it is limited to $13 per troy ounce.
India and China together account for 70% of the global demand for gold. Last year, a record amount of gold was bought in these countries, after the gold price plunged by more than 10%. The price drop of the last two months is once again attracting bargain hunters to the market. They buy not only gold jewellery, but also gold bars and Gold Coins.
