China, Turkey may take the shine off India’s festivities by bagging lion’s share of gold supplies

More than 75 per cent Indian families have invested in gold as an asset in some form, and 56 per cent of the precious metal is bought by Middle-Income people. Gold has traditionally been seen as a safe investment vehicle, and bulky safes at home are now being replaced with trading accounts where Indians can buy and store gold in electronic form. But despite the allure of gold among Indians, banks that supply gold are prioritising China and Turkey over India as markets for the commodity.

Safe investment in times of economic uncertainty

Demand for the glittering investment vehicle and status symbol was already high in July due to weddings, and is set to surge further during the festive season, after prices dipped in September. But the latest move by banks to divert gold away from India will mean that people will have to pay a higher price, and that can dent the finances of middle-income groups. The demand for gold will be highest during Dhanteras, when people will buy gold bars and jewelry as part of an age-old tradition, but the scarcity might spoil celebrations.

Pay more to keep festivities lit

JP Morgan, ICBC, and Standard Chartered are the top three banks that import the most gold in India right before the festive demand picks up, and then store it. But currently, their vaults have 10 per cent less gold, and the low premium paid by Indians on international prices may be a factor. Since Indian traders were offering gold at discounted rates after importing it as a lower-tariff alloy of platinum, Indians are only paying $2 above global prices. But Chinese buyers are paying $45 as a premium, while in Turkey, it goes as high as $80.

Turns out gold only glitters for those willing to pay a hefty price on top of the global rates, and that’s where Indians are lagging behind Chinese and Turkish counterparts. On top of this, while India’s gold demand was down by 30 per cent last month, China saw a 40 per cent uptick and Turkey’s gold imports jumped by more than 500 per cent.

Spoiling the festivities

Apart from the annual Diwali gold rush, the precious metal is also a valuable cushion against inflation, and can be a safe bet for the impending recession. But with India’s festive markets may not shine as bright as every year this time around.