Gold Weekly: India’s Diwali Physical Gold Demand and the Weekly Outlook

Market Analysis /
Stephen Innes / 07 Oct 2019

India is one of the world's largest gold importers. Moreover, while gold bulls often cite India’s gold demand, this is a relatively new phenomenon. Until 1990 gold imports were pretty much banned and just eight years before that only 65 tonnes of gold had been brought in. By 2010, however, imports had reached over 1,000 tonnes. 

Diwali (also Deepavali or Dipavali) is a four to five-day-long (varying as per Hindu Calendar) festival of lights, which is celebrated by Hindus, Jains, Sikhs and some Buddhists every autumn in the northern hemisphere (spring in the southern hemisphere).

It is considered auspicious to buy gold during the festivals of Diwali and Dussehra, and this seasonal demand for gold can have a significant impact on prices in October. 

However, this year has been tough for gold traders in India. Soaring physical prices, a weaker Rupee, a slowing economy and a rise in import duties on gold and other precious metals have dampened retail demand.

This phenomenon has been reflected in import volumes where Bloomberg News reported weak August import volume of 14.8 tonnes, the lowest in more than three years and an even softer September number of 13.5 tonnes, down 85% year on year.

Overall this Bloomberg data confirms the perception that physical gold demand remains weak, suggesting these recent up and down moves are more about leveraging paper gold impulses.


Gold Outlook (October 7- 11)

Gold is currently precariously perched above $1500; apparently investors are trying to reacquaint themselves with this level once again.

The market remains supported on dips, likely by opportunistic investor buying, which has probably been responsible for gold's spectacular recovery back to current levels in the absence of support from physical markets, particularly Indian demand. However, there does not appear to be a significant urgency to re-establish longs.

So, while price action seems supportive enough to suggest a long bias remains intact, market participants likely need further evidence from the Federal Reserve Board that they are shifting to an easing bias to push prices significantly higher. 

Last Friday's non-farm payroll offered few clues with the report coming in on a common variant. However, this week investors will parse a deluge of Fed Speak for clues on the next policy step.

Finally, and most significantly, investors are pivoting to trade talks and the lingering uncertainty around tariffs. US-China trade delegates are set to commence with trade negotiations this week. As such, market participants are likely waiting for developments on this front before taking any tangible positions on Gold.


This Week’s Drivers

  • Trade talks
  • Fed speak
  • Macro data surprises


Famous Gold Quotes

"If speaking is silver, then listening is gold." ― Turkish Proverb



Axi in the news

Reuters Oct 1

“(A) less accommodative Fed implies a stronger U.S. dollar and higher U.S. yields, which are the absolute worst bedfellows for gold markets,” Axi market strategist Stephen Innes said in a note.


The Star Oct 2

Meanwhile, Stephen Innes, Asia Pacific market strategist at Axi said US economic data continues to hold up, suggesting US recession fears are receding.

"Hence, the Fed policy reaction function may not be one of total urgency in October.

"Less accommodative Fed implies a stronger US$ and higher US yields which are the absolute worst bedfellows for gold markets," he said.


India Times Oct 3

"In the short term, investors are sliding towards a dollar-denominated safe-haven appeal," said Axi market strategist Stephen Innes.


Read more market views from Team Axi:

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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