Gold has been steadily declining for the past year, and the precious metal looks like it will finally end its 12-year bull run. Part of its demise stemmed from equities rallying, which caused a major increase in risk appetite and an asset class shift for many. Others stipulate that it has simply been a natural correction preceding a run higher. Lately, however, gold has been feeling pressure from India as the emerging economy has been frustrating traders around the world.
India and Gold Demand
India has long been one of the biggest consumers of gold, a fact that does not sit well with a government that is trying to narrow its account deficit. As a result, India put measures in place to limit the amount of gold it imported and consumed; this included a tax hike as well as a mandate on exporting some of the nation’s gold as jewelry. The policies worked, and Indian gold imports fell approximately 90% in August.
Being such vital consumers and price drivers of gold, the policies worried traders and injected some volatility into an already sputtering commodity. But as we enter October and India’s holiday season, gold may finally see some relief.
While most consumers around the world are worried about getting their shopping done at local retailers, India is focused on gold. Each year, the nation gears up for the celebration of Diwali by purchasing large quantities of the precious metal. According to the World Gold Council, India’s demand rises as much as 40% during the holiday season. The demand spike may finally give gold the jolt it needs to propel forward.
With imports and consumption for gold virtually nonexistent over the summer, a marked increase in Indian gold purchases could have a sizable impact on the price of gold, which may make for a good short-term trade. While gold seems like it wants to correct a bit more over the medium term, savvy traders will be able to bank a quick profit playing off of this trend.
A word of caution, however, on trading gold in October: Seasonal studies show that gold typically bottoms out in October before making a run higher for the next few months; the trend has been relatively consistent for the past two decades. Pick out an entry point ahead of time and be willing to stick to your strategy when looking for gold’s bottom.
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
No positions in stocks mentioned.