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Gold Special Report: Diwali, 2023

Diwali, the festival of lights, holds immense cultural and religious significance in India, and it is a time when gold assumes a special role. Gold is not just a precious metal; it is a symbol of wealth, purity, and prosperity. The buying of gold jewelry, coins, and gifts during this period is seen as a way to attract wealth and financial stability. It is believed that acquiring gold during Diwali brings good fortune and prosperity to the household

Traditional options like gold jewelry and coins are not only symbols of prosperity but also cherished possessions. In addition to these instruments, modern options such as Gold Exchange Traded Funds (ETFs) and Sovereign Gold Bonds (SGBs) offer convenient and secure ways to invest in gold without the need for physical storage.

We have touched upon the key factors which may positively influence the gold prices in the coming months.

Gold Annual Returns (2013-2023)

Geo-Political Concerns

Gold prices have been rising since October after the Middle east tensions emerged following the Israel-Hamas war. While there has been some reduction in hostilities between the two nations, the lingering uncertainty about a swift resolution to the conflict continues to pose supply shock risks from a broader perspective. Consequently, given the influence of global tensions on investor sentiment, the demand for gold as a safe haven asset is expected to maintain a positive trend in the weeks to come.

Gold has surged since the conflict broke out in the middle east

Rupee Depreciation

Deprecation in the rupee has supported the gold this year, in addition to the fundamental factors. The rupee has depreciated from 82.60 since January 23 and presently hovers around the 83.25 level. There is no sign of reversal in the rupee trend so far which may continue supporting the gold market.

MCX Gold Prices v/s USDINR

Central Bank Buying

As per the latest WGC report, central bank buying of 337t remained robust in Q3’23, although failed to match the exceptional 459t from Q3’22. The apex banks have bought 800t in the first nine months of the year so far, which is up by 14 % YoY basis. Earlier, the demand shot to an 11-year high in 2022 due to record purchases by the central banks worldwide. China has spearheaded record levels of central bank purchases of gold globally in the first nine months of 2023. And we may see a similar trend in other geographies also to reduce their reliance on the dollar.

Central banks gold buying

Inflation

The annual inflation rate for the United States was at 3.7% for the 12 months ended September, according to U.S. Labor Department data published on Oct. 12, 2023. The inflation has reduced drastically yearly basis yet remains above the Fed’s target inflation rate of 2 percent. This suggests that the investment demand for gold shall remain strong since gold has been a savior in times of economic distress.

US Inflation

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