Given the fall in price, India, the second largest buyer of gold after China, was expected to pick up the metal at lower prices. However, this hasn't been the case. Demand has hardly moved in India.
Gold prices in India fell for the third straight day on Wednesday, largely tracking weakness in the international market. Gold prices were at their weakest since August 8, 2011 after they shed Rs 150 to trade at Rs 25,550 per 10 grams in the bullion market.
In the global market, the precious metal has been trading below the red line for the ninth straight day after Shanghai offloaded 33 tonnes of gold in a single session, China hiked its gold reserves by 57% which was still half of what the market expected; investors bought the dollar ahead of the US Fed's expected rate hike.
Given the fall in price, India, the second largest buyer of gold after China, was expected to pick up the metal at lower prices. However, this hasn't been the case. Demand has hardly moved in India.
Here are some reasons why:
Deficit rainfall - Monsoon, so far, in 2015 has been less than satisfactory, albeit a few heavy showers. West India witnessed an almost dry spell from second week of June to mid-July. A good monsoon buoys demand for gold from rural areas on the expectation of a good crop. The Indian Meteorological Department has said that in July alone, there has been a 7% deficit in the All India Area Weighted Rainfall across the country. Retail inflation at an eight-month high in June has also deterred demand for gold.
Festive season - The festive season in India doesn't start till October this year. During this time, gold demand picks up significantly. Before that, it isn't surprising for buyers to restrain from buying the metal. However, this year, during Akshaya Tritiya, the most auspicious time to buy gold, where demand is expected to go higher by almost 20%, buying this year remained muted on the expectations of a lower price.
Wedding season - Sale of gold jewellery usually climbs in the fourth quarter of the year during the wedding season. Jewellery and gold investment demand had tumbled last year due to government's curb on imports, however, this year, demand may rise significantly during the wedding season.
Expectation of a lower price - Prices may have hit a four year low, but the tumble has been gradual, unlike the fall in 2013, where gold shed $200 in two days sending buyers rushing to buy the metal at a lower price. Tracking the fall in prices back then, Indians may be waiting for a further fall in prices before they buy the metal.
Easing economic woes: Global economic woes have eased in the last week or so. Greece gave in and accepted austerity measures in exchange of a fresh bailout. The country recently paid an International Monetary Fund loan, and the fund has now said that the country is no longer in default. US Federal Reserve is expected to increase interest rates for the first time in almost a decade, thereby making the greenback more alluring against the yellow metal.
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