India's festivals, wedding season flop for gold traders

Gold demand in India usually picks up in the run-up to the festival and wedding season that runs October to December but after an exceptional August, the country's imports and domestic demand have been falling dramatically.

The weakness is reflected in the differential between the domestic price of gold compared to the ruling international price.

After the Indian government raised taxes and duties and introduced various measures to curb imports in 2012–2013, premiums for gold inside the country shot up as high as $130 an ounce over the London price during Dhanteras and Diwali, the two festivals closely associated with bullion buying. Gold purchases can typically constitute 50% of the costs of a wedding.

Most of those restriction are still in place, but there appears to be no shortage of metal available on the subcontinent.

This year buying has been remarkably subdued with Indian traders forced to sell gold at a $10 discount to the international price last week. Platts News reports there's been a slight pickup following gold's more than $40 an ounce drop last week with discounts returning to the low single digits in Mumbai and Ahmedabad:

"Indian dealers expect demand to continue strongly this week and for discounts to move into a premium.

"However, most are still struggling with the poor start to the season, with one source predicting sales around 25-30% lower than last year for the entire season."

Gold is India's biggest import item after crude oil and the country's jewellery industry is the world's number one importer ahead of China. In the first nine months of the year the country imported 689 tonnes of gold with the total for the year expected in the region of 900 tonnes. That's down from a record 1,079 tonnes in 2011, but up sharply from 779 tonnes in 2014.

In an attempt to put the estimated 20,000 tonnes of gold households and Hindu temples are hoarding to more productive use and alleviate pressure on its current account, the Indian cabinet last week launched two new gold monetization schemes.

On Monday, in light volumes in afternoon dealings on the Comex market in New York, gold futures with December delivery dates continued to lose ground. Gold was last trading down $5.40 or 0.5% at $1,135.90, a one month low.