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How Indian Demand Could Influence Gold Prices

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Dec. 4 2020, Updated 10:52 a.m. ET

Second largest buyer

Though the rise in gold has mainly been supported by geopolitical tensions, a temporary revival in the precious metals was due to Chinese traders returning from their Golden Week holidays.

India and China remain the top two consumers of gold (IAU) and silver (SLV). India is the second largest importer of gold, and imports take care of most of the domestic jewelry demand. At present, there is a 10% duty on gold imports, but the Indian government is considering a cut in the duty paid. As compared to the previous year, the demand for gold in India rose almost 31% as jewelers increased their purchases due to the festivities.

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September imports

The increased purchases in September were mostly due to the Dussehra festival falling in September instead of October like last year and the previous few years. The country imported 48 tons of gold in September.

However, the September figure was lower than the monthly average for 2017 of 75 tons. Overall, buyers have been cautious about gold purchases, as the Prevention of Money Laundering Act was implemented in August. The import figure in October could rise above 70 tons as banks and other importers increase overseas purchases for Diwali.

The demand figures may or may not have a short-term influence on precious metal prices. However, in the long run, demand may sway precious metals. The mining stocks had a mixed reaction on Tuesday. Yamana Gold (AUY) and Eldorado Gold (EGO) rose 3% and 0.92%, respectively, while Coeur Mining (CDE) and IAMGOLD (IAG) were down 2.5% and 5.5%, respectively.

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