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Apr 30, 2024

On 19 April India begins its seven-phase general election that will last 44 days and conclude on 1 June. Gold consumption tends to be impacted during the election season as there is heightened scrutiny on the movement of cash, gold, and jewellery. Anecdotal evidence suggests that the various industry stakeholders (bullion dealers, manufacturers, and jewellers) limit their transactions during this time.

Data shows that gold consumption has fallen during three of the last four general election periods with a decline in demand for both jewellery (comprising over 70% of Indian consumer demand) and bar and coin. We did see a rise in gold consumption during the 2019 election season, but this was linked to the higher number of auspicious days and a softening of gold prices.

The bottom line here is that political events likely will have gold price repercussions this year. Despite the country’s size and importance, India’s election is likely to be somewhat of a damp squib for gold demand.

In summary

Gold is at an all-time-high and is getting attention. But assets at such levels are challenging for investors who think they may have missed the boat. However, our analysis suggests that gold is currently well supported by fundamentals, and the low participation from US investors in particular augurs well for the rally to continue, in contrast to what we saw in 2011.

Alongside gold’s records, we’ve also seen all-time highs in the prices of many other assets including global equities.6 Gold’s share of assets is low not only from the unrelenting push higher in the prices of other assets but the large issuance of financial securities. Gold’s physical supply constraints means that its price has to do the heavy lifting to maintain a sensible share of assets. We’ve not yet seen this materialise, which is encouraging.

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