India stops bulk buying of gold ETFs; The market is on the eve of the festive season

Source link: India stops major purchases of gold ETFs; The market on the eve of the festive season at a glance, big mutual funds such as Kotak, UTI and HDFC have stopped major purchases of gold ETF units; Redemption of units is still possible. This decision was made before Dussehra and Diwali celebrations; A period when the demand for gold in India usually increases. Gold imports reached 1.8 billion dollars in September, while […] Source site: Safir

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Several large Indian mutual funds have stopped buying bulk units of gold exchange-traded funds; A decision that reduces one of the seasonal supports of the market just before the beginning of the peak gold buying season in this country.

Kotak Mahindra, UTI and HDFC mutual funds announced in public notices late on Thursday that they would stop buying bulk of their gold ETFs. The announcements did not state a reason for the decision, and redemption of units is still possible. According to Reuters, an investment fund manager and two gold bullion industry officials said the move was made after discussions with the Securities and Exchange Board of India, the market watchdog. SEBI did not respond to a request for comment outside business hours.

The implementation time of this decision is important for the gold market. India is the second largest consumer of gold in the world and meets most of its needs through imports. Demand usually peaks around Dussehra in October and Diwali in early November; The period when buying gold is considered auspicious. Last year, investments in gold and silver exchange-traded funds increased during the festive season; Because investors were looking for alternatives to the stock market, which did not yield much.

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The main concern is about the rupee. The currency has been under pressure this year following rising oil prices, which have pushed up the cost of imports, and a massive sell-off in Indian stocks by foreign investors. Strong demand for gold has also added to this pressure and has forced the government to increase the import duties of gold and silver earlier this year. Several mutual funds also set a cap on large investments in gold ETFs in June; At the same time as the authorities try to curb imports.

This appears to be a precautionary measure, not a reaction to the current surge in imports. Gold imports fell to $1.8 billion in September from $2.3 billion in August. A gold bullion trader at a private bank told Reuters imports had not added to the trade deficit in recent months, describing the major buying freeze as a precaution to avoid a surge in imports in October.

For the gold market, these restrictions eliminate one source of fresh demand; That too in a situation where the increase in expectations for the US interest rate to rise again has already put pressure on the prices. Retail investors will still be able to buy physical gold, so festive demand is not going away. But the curb on big ETF purchases is narrowing one of the avenues that has helped boost demand in past seasons.

It remains to be seen whether other mutual funds will follow suit, how long the buying freeze will last, and whether October's import figures suggest seasonal demand has shifted to physical gold rather than ETFs.