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Gold is highly sought after, not just for investment purposes and to make jewelry but also for use in the manufacturing of certain electronic and medical devices
What factors causes gold demand?
Worldwide Jewelry and Industrial Demand
Jewelry remains one of the main uses of gold. Jewelry accounted for approximately 88% of gold demand in Q2 2024, excluding OTC demand, according to the World Gold Council. Jewelry has consistently remained the highest source of demand for gold.
In addition, with the boom in artificial intelligence, year-over-year demand for gold to be used in technology grew 11% in the second quarter of 2024. This means that as demand for consumer goods (like jewelry and electronics increases), the cost of gold can rise.
Investment Demand
Gold also sees demand from exchange traded funds(ETF). These are securities that hold the metal and issue shares that investors can buy and sell just like stocks. The SPDR Gold Trust ETF mentioned earlier is the largest and held roughly 863 tons of gold in September 2024.
Key factors influencing the gold marketUS inflation dataThe US Consumer Price Index (CPI) report revealed that while the headline CPI rose by 0.2% in August, the annual rate fell to 2.5%, the weakest increase since February 2021.
For example: The price of gold is generally inversely related to the value of the U.S. dollar because the metal is dollar-denominated. All else being equal, a stronger U.S. dollar tends to keep the price of gold lower and more controlled, while a weaker U.S. dollar is likely to drive the price of gold higher through increasing demand (because more gold can be purchased when the dollar is weaker).Market volatility and economic indicatorsAccording to experts, potential interest rate cuts by the European Central Bank (ECB) could further support precious metal price.
For example: Changes in currency rates can impact gold rates. When the pound is strong, gold becomes more expensive for foreign buyers reducing global demand. On the other hand, when the pound declines, currencies like the euro or yen become stronger, allowing foreign buyers to purchase more gold, leading to decreased supply and increased demand.
Impact on Indian market
Gold sale is set to see rise during Diwali and wedding season in India.
Thus, while retailers might face some inventory challenges, these are expected to be offset by increased sales and reduced promotional expenses due to heightened demand.
Thank you.
Regards,
Shruti Kalkotwar,
Kautilya, IBS Mumbai.
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