Global Gold Market Set To Boom With Indian Spot Exchange

The World Gold Council (WGC) released important updates regarding gold demand for Q2 2017. The report published August 3, 2017 indicates a spike in gold demand of 953.4 metric tons. Compared to Q2 2016, that figure is still 10% less. Owing to the large number of capital flows into gold exchange traded funds such as GLD in 2016, 2017 figures appear significantly more threadbare. Gold demand surged in 2016, particularly during the first half of the year. Overall, central banks purchased 176.7 metric tons of gold, with positive investments in gold coins and gold bars. Asian countries like China and India have been driving gold demand, notably India which has reported record gold purchases for jewellery.

Gold Demand, The USD And The Asian Factor

According to official stats and reports, gold bar and gold coin demand is now up 11% year on year, thanks largely to Indian, Chinese and Turkish investments. In H1 2017, increases in gold jewellery demand were noted, and significantly smaller investments in ETFs and similar products compared to H1 2016 took place. There was a spike in total gold bar and gold coin demand in H1 2017, while central banks and other institutions’ gold holdings remained steady. The country which added to its gold reserves most was Turkey, and it marks the biggest increase in gold bullion additions for the country since the 1980s. From a technological perspective, gold demand increased by 81.3 metric tons, up 2 percent by H1 2017 (year-on-year comparisons), led in part by LEDs, and mobile technology.

Heading into October 2017, gold demand was rather flat in India, with MCX gold futures falling 0.02%, largely attributed to US GDP data which is holding back the gold price. Sideways trading is expected over the short-term, until further policy updates from the Fed. Since gold is a dollar-denominated commodity, its pricing and demand structure is heavily influenced by monetary policy. Monetary tightening such as rate hikes or asset sales will raise the value of the USD, thereby depressing gold demand. The opposite also holds true. But the big news comes from India where jewellers and banks will be trading gold bullion on a spot exchange within 1 – 1.5 years. This, according to the WGC (World Gold Council) as India investigates the possibility of creating a committee to deal with banks, regulators, and the mining industry among others.

India Bigwigs Push For Spot Gold Exchange

India’s gold industry is rather fragmented, and these new initiatives are geared towards increasing the transparency and credibility of the gold industry, and to streamline all trading activity.

ECN Capital trading expert, Muttiah Prabesh has words of praise for these dramatic transformations in the Indian gold exchange market, ‘For starters, the presence of a spot exchange would radically transform the Indian gold markets by ensuring standardization, greater inclusiveness, and an efficient process of price discovery. A spot gold exchange also makes it easier to connect consumers and suppliers. The gold mining industry in India has been fraught with challenges over the years, and calls for greater transparency are ringing out.’

These structural reforms have been welcomed by market players at all levels. The Indian government has set a timetable for November 2017 to finalize the specs for a spot gold exchange. Presently, Indian gold traders utilize the futures exchanges available in the country, but the spot gold exchange will prove to be a big boon for the gold industry overall.

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