Will Gold Rates Fall In Diwali? Impact on Indian Gold Jewellery Demands

Gold rates in the international markets are being quoted at a subdued rate now as the US Federal Reserve has finally announced their long-anticipated tapering details. India imports gold from foreign markets and Indian gold rates are dependent on international prices. Today on November 4, in Mumbai, MCX gold futures dropped by 1.26% and were quoted at Rs. 47020/10 grams, with an absolute drop by Rs. 602/10 grams till 11.21 AM IST.

Just ahead of Diwali this is good news for common buyers in India. Comex December Gold Futures are being quoted at $1774.9/oz, at the same time.

Indian gold rates

However, as an immediate reaction to Jerome Powell, Fed's Chairman's announcement of tapering, Comex gold rates dropped significantly and closed at $1763.9/oz yesterday. Just before Diwali, when Indian jewelers are concerned about gold demand in the country, this drop will certainly doom them, although profitable for buyers. Yesterday, 22 carat gold rates were quoted at Rs. 46410/10 grams and 24 carat gold rates were quoted at Rs. 47410/10 grams, which dropped by Rs. 100/10 grams than the earlier trading day.

After the official announcement of tapering, gold rates in Indian markets will certainly fall during Diwali. Hence the gold jewellery demands will increase during this festive season, followed by the wedding season. Already the gold jewellery demands have increased by 60% in India according to WGC.

(Also read: Gold Jewellery Demand Has Increased By 60% In India, In Q3)

Gold rates in major Indian cities on November 3 are mentioned below:

City	22 carat (INR/10 Grams)	24 carat (INR/10 Grams)
Mumbai	46,750/-	47,750/-
Delhi	46,700/-	50,900/-
Bangalore	44,550/-	48,600/-
Hyderabad	44,550/-	48,600/-
Chennai	44,820/-	48,900/-
Kerala	44,550/-	48,600/-
Kolkata	47,100/-	49,900/-

US Fed tapering

Fed was purchasing at least $120 billion assets per month, and the central bank is now planning to curtain the size by $15 billion per month now. So, the Treasury yield is rising, the 10 years Treasury yield has hiked by 1.60% recently this figure can improve. So, the investors will find government bonds more interesting now than other assets like gold. Hence, the gold rates will fall marginally now.

(Also read: US Fed Announces Monthly Tapering By $15 Billion: Reaction On The Market)

In the next year, if Fed hikes the interest rate, the spot gold rates and gold futures will again drop significantly.