Why gold prices are likely to go higher this festive season

India’s love for gold is unparalleled all over the world. And with Diwali around the corner the demand for the precious yellow metal is only going to go up. 

But this Diwali, Indians may find it harder to get their hands on the jewellery of their choice. 

If news reports are to be believed, gold supplying banks have cut back shipments to India ahead of major festivals in favour of focusing on China, Turkey, and other markets where better premiums are offered. 

A Reuters report said that this pushback could create a degree of scarcity in the world's second-biggest market for gold, and force Indian buyers to start paying hefty premiums for supplies in the approaching peak-demand season.

How is gold imported into India?

Leading gold suppliers to India - which include ICBC Standard Bank, JPMorgan and Standard Chartered - usually import more gold ahead of festivals and store it in vaults.

How precarious is the situation right now?

According to the Reuters report, vaults now hold less than 10% of the gold they did a year ago. 

How do Indian gold imports look right now?

India's gold imports in September fell 30% from a year ago to 68 tonnes, while Turkish gold imports soared 543%. China's net gold imports via Hong Kong jumped nearly 40% to a more than four-year high in August.

So, how low are premiums in India?

In India, premiums over the international gold price benchmark have slid to $1-$2 an ounce, against around $4 this time last year.

And why did these premiums go down so low?

Premiums were driven sharply lower by a now-closed loophole that led some Indian trading houses to import gold as lower-tariff platinum alloy, allowing some to even offer gold at a discount, the report said. 

How much better are premiums elsewhere?

That contrasts with the $20-45 premiums offered in top consumer China, helped by pent-up demand being released after COVID-related lockdowns, and $80 in Turkey, where gold imports have risen sharply against a backdrop of rampant inflation.