This chart will give hope to gold price, India bullion bulls

On Tuesday gold continued to trade sideways with December futures trading on the Comex market in New York exchanging hands at $1,270.50 an ounce. While down more than $100 an ounce from two-year highs touched in July, year to date the metal is still managing gains of nearly 20%, one of its best annual performances since 1980.

Gold's run-up in 2016 is largely thanks to investors in developed markets snapping up tonnes in listed physically-backed gold ETFs and large-scale speculators on gold derivatives markets placing record-setting bets on a higher gold price (although that trend's moved into reverse recently).

Largely absent from the rally has been the world's two top physical buyers of the metal, India and to a lesser extend China which together represent more than 50% of global demand.

Gold's retreat in October is spurring physical buying in Asia

With little domestic production, India has dependably imported between 700–900 tonnes in recent years (2015's gross total was a near record 947 tonnes) and going back decades has been the world's number one importer of the metal; only on two occasions handing the crown to China.

This chart will delight gold price, India bullion bulls

Source: Capital Economics

Such is the appetite for gold inside the country that importers have always been able charge premiums for physical delivery, sometimes in excess of $100 an ounce during the busy festival and marriage seasons that kick off in October each year.

Following government import curbs and duties (an onerous 10%) and other trading restrictions introduced in recent years, the dynamics in the domestic market have been turned on its head.

Gold imports have all but imploded with shipments dropping to to just 270 tonnes year to end-September. That's down just under 60% from the 658 tonnes that were shipped during the corresponding period of last yearn according to a study by the Indian business chamber Assocham.

At this rate annual imports could be the lowest in at least two decades.

But there are signs that 2016's all-important festival season may not be such a big disappointment after all (despite another Assocham study showing cash and vouchers are the preferred gifts for Diwali).

In a research note Capital Economics points out that gold's retreat in October is spurring physical buying in Asia. Domestic prices in India are now trading at a premium to international prices for the first time this year, "suggesting strong local demand ahead of the festivals season."