India’s H1 demand of 202t is the lowest since 2020. Despite the sharp decline in demand, the domestic economic environment remains healthy: GDP growth is forecast at 7% and increased sales of two-wheelers and FMCG seem to point towards recovery in the important rural sector.
Although gold prices retreated in June from their May peak, they held above the psychologically significant threshold of Rs70,000/g and this kept demand subdued – as reflected in the persistent discount in the local price during the quarter. Along with the record gold price, several other factors contributed to the relatively weak Q2.
The national elections from mid-April to early June proved disruptive to gold jewellery consumption, as did the severe heat wave that saw record temperatures in Delhi at the end of May. The Akshaya Tritiya festival in India – considered one of the most important gold-buying occasions in India – prompted a resurgence in demand in mid-May.
Anecdotal evidence suggests that demand exceeded expectations, with strong activity observed in both urban and rural areas. However, this boost was short-lived and demand tapered off fairly sharply.
Encouragingly, there have been few signs of distress selling of gold jewellery by Indian consumers. Recycling activity has been dominated by gold-for-gold exchange, rather than outright sales. More notably, there has been growth in gold loans using jewellery as collateral: such activity was reportedly up 30% y/y by the end of May.
In more recent developments, the government’s 2024-25 budget (presented on 23 July) slashed the import duty on gold and other metals. Finance Minister Nirmala Sitharaman announced a cut in total import duty on gold bars from 15% to just 6%, and on gold doré from 14.35% to 5.35%.
The change takes effect from 24 July and is likely to prompt a revival in gold jewellery demand in Q3 as the lower price of imported gold feeds through to consumers at the retail level before seasonal festive buying begins.
A healthy monsoon so far should add to the positive momentum in domestic economic growth and further support demand in Q3. However, any further sharp rises in the gold price would likely mitigate the positive effects of the cut in customs duty – at least temporarily – until consumers become accustomed to new, higher levels.
