Filed 15 October 2011, 12:35 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.
Gold prices in India, the largest gold market in the world, were set to meet another peak buying season with Diwali approaching. Jewellers and stockists had begun buying ahead of the festival, and consumers were expected to follow from the following week: the ordinary sequence of an Indian festive season, in which the trade builds inventory first and retail demand arrives second.
Indian gold prices followed global trends, but Indian demand was driven by local factors: the festival calendar and the wedding season above all. That combination is why the same international price produced very different Indian activity in October than it did in, say, June, and it is the single most useful thing to understand about the physical gold market of this period.
The figures as filed
The metal recovered to close higher for the week on the Friday before this dispatch. Spot gold in Delhi ended at Rs 27,120 per ten grams; gold of 99.9 and 99.5 per cent purity each recovered Rs 110, to Rs 27,120 and Rs 26,980 per ten grams respectively. Silver moved the other way, settling lower: a kilogram fell Rs 300 to Rs 53,800, silver ready fell a further Rs 300 to Rs 53,800 per kilogram, and weekly-based delivery fell Rs 400 to Rs 53,210 per kilogram. Silver coins were steady at Rs 62,000 for buying and Rs 63,000 for selling per hundred pieces.
| Instrument | Close | Change |
|---|---|---|
| Spot gold | Rs 27,120 / 10 g | higher on the week |
| Gold 99.9 % | Rs 27,120 / 10 g | +Rs 110 |
| Gold 99.5 % | Rs 26,980 / 10 g | +Rs 110 |
| Silver | Rs 53,800 / kg | −Rs 300 |
| Silver weekly delivery | Rs 53,210 / kg | −Rs 400 |
| Silver coins | Rs 62,000 / 63,000 per 100 | unchanged |
Quoted in rupees per ten grams for gold and per kilogram for silver, the Indian retail convention. To compare with a dollar-per-ounce figure, see the unit table in Charts & Data.
Why the festive season moves a world price
India accounted for a very large share of world jewellery demand in this period, and that demand was concentrated into a few weeks. Diwali is the largest of them: buying gold on the festival is considered auspicious, and the weeks around it carry both gift purchases and the beginning of the wedding season. Because the metal is bought as jewellery that is worn, given and pledged rather than as an investment position, the demand is comparatively insensitive to price, which is precisely why it shows up as a seasonal pattern rather than as a response to the market.
For the trade, the season is a stocking decision made weeks in advance. Jewellers and stockists buy ahead because a shortfall during the festival cannot be recovered afterwards, and that front-running is visible in the import figures and in the landed premium before it is visible in retail sales. This dispatch catches that moment: the trade buying, the consumer not yet.
What happened next
The 2011 season was the last in this archive's period to take place under a low import duty. From January 2012 the Indian government began raising duty on gold imports, reaching 10 per cent by August 2013 and adding an export-linked quota rule on top. Each tightening widened the gap between the legal landed price and the street price, and each was followed by a measurable increase in unrecorded inflows. Festive demand itself did not go away, which was the central problem with the policy; the sequence is set out in India's gold import regime.
The international price also turned. Gold held above roughly $1,600 an ounce through 2012 and then broke sharply in April 2013, falling to about $1,060 by December 2015. Indian physical demand rose into that fall rather than retreating from it, which is the clearest illustration in this archive of how differently a jewellery market and an investment market respond to the same price.
Questions about this dispatch
Why is Indian gold quoted per ten grams instead of per ounce?
Because that is the retail convention in India, and the wholesale market follows the retail one. International wholesale gold is quoted in US dollars per troy ounce of 31.1035 grams; Indian retail is quoted in rupees per ten grams. Converting between them requires the exchange rate as well as the weight conversion, which is why a rupee price and a dollar price can move in different directions on the same day.
What is the difference between 99.9 and 99.5 per cent gold in these quotes?
Fineness. The two grades were quoted separately in Indian bullion markets because both were traded, with 99.5 selling at a small discount reflecting the lower gold content. Neither is the same as the 22-carat (916 fineness) gold most Indian jewellery is made from, which is a third price again. Comparisons that ignore fineness are the most common error in cross-market gold reporting.
Is the Rs 27,120 figure comparable to a gold price today?
Only as a historical observation. It is a Delhi spot close for the week ending 14 October 2011, under an import-duty regime that changed five times in the following two years, at an exchange rate that has since moved substantially. It is a correct record of that week and it is not a basis for any comparison without restating all three variables.
Why does festive buying start with jewellers rather than with consumers?
Because a jeweller who is out of stock during Diwali cannot recover the lost sale afterwards, so the trade buys weeks ahead of the retail peak. That is why import volumes and the landed premium move before retail sales do, and why a dispatch filed in mid-October describes the trade already buying while consumers were still expected the following week.
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