With the starting of the upcoming festive season in India- Diwali, known as the festival of lights; the curb in the imports by the government has made the gold coins and bars to outweigh from the previous year’s top most consumers to stay behind this year. India was the top importer of the bullion gold in 2012 consuming around 20% of the global gold demand. The festival of Dhanteras which is two days before Diwali, as per Indian cultural practices buying and gifting gold is considered propitious. As Diwali is the festive season for the Hindu, Lakshmi the goddess of wealth is worshipped on the third day. The Indians believe gold as store of wealth and part of the tradition.

Indian government had raised the import tax rate on imports on 13th of August this year to reduce the current account deficit it was facing and curtail the demand. The ballooning of the current account deficit and the weakening of the rupee to the all time low made the government to step forward to such decision. The duties were increased to 10% on gold, silver and platinum; and 9% on the refined gold. The government also put up a condition that the 20% of the imported gold should be re-exported. Thus this made the gold imports to curtail to 850 metric tons which was about 2/3 of the total gold demand in the previous year.

China, the other major consumer of gold bullion in the world has been estimated to take over India in gold consumption this year. According to the World Gold Council’s forecast, China may increase its gold consumption this year by 29% thus reaching its consumption to 1,000 tons. Taking into account China and India, they alone consume more than 50% of the world’s gold demand. Looking at the previous year’s data, China had purchased 69.7 tons and while comparing it with September month purchases, it appears 67 % higher.

Due to the fading demand over the gold in China, the premium for immediate delivery for gold purchases declined. This shows that the gold demand from the potential top consumer country this year is declining amid the fall in the gold prices. On the other hand, the demand in India amid high demand from the people has been curbed by the government. Looking at the two different scenarios where in China people are not buying though there is high supply and low demand and in India where people are not allowed to buy due to regulatory halt as there is less supply and high demand. When still the Fed is delaying the curtailing of the stimulus package known as QE, where is it going to take the gold prices by the top two consumers of gold nations?