India’s festive season is projected to see a decrease in gold demand compared to last year.
This anticipated decline is primarily due to record-high gold prices, which are expected to dampen jewellery purchases, despite a slight uptick in investment demand.
Lower gold demand in India, the world’s second-largest consumer, could cap rising global prices, which reached a new high last week, Reuters said in a report.
This subdued import demand for gold, however, could also help reduce India’s trade deficit and strengthen the rupee.
Last week, local gold prices reached a record high of 109,840 rupees per 10 grams.
This marks a 42% increase year-to-date, building on a 21% gain in 2024.
“Consumers have a fixed budget, and it’s not keeping up with rising prices. We’re expecting demand to fall by about 10%-15% in volume,” Amit Modak, chief executive of PN Gadgil and Sons, told Reuters on the sidelines of the India Gold Conference in New Delhi.
Festive season demand
The festive season in India is approaching, with Dussehra and Diwali scheduled for October.
These prominent Hindu festivals hold deep cultural and religious significance, and it is considered highly auspicious to purchase gold during this period.
This tradition stems from ancient beliefs associating gold with prosperity, wealth, and good fortune, making it a popular investment and gift during celebrations.
As a result, the demand for gold typically sees a significant surge across the country during October, influencing both local markets and global gold prices.
India’s gold sales typically see a surge during the December quarter, contributing approximately one-third of the annual sales.
This increase is primarily driven by the onset of the wedding season and various festivals.
Last year, gold demand in the December quarter reached 265.8 metric tons, according to the report.
This surge was primarily driven by a price correction that occurred just before the festive season.
The price adjustment followed New Delhi’s decision to reduce import duties on gold from 15% to 6%, a measure implemented to combat smuggling.
Sachin Jain, CEO of the World Gold Council’s Indian operations, stated that consumer sentiment has improved recently, despite increasing prices.
He added that while volumes might decrease, demand would still be significantly higher in value terms.
Retail business and signs of demand revival
Last month, the World Gold Council said in an update that there were signs of demand revival in India as the gold jewellery market geared up for the festive and wedding season.
Kavita Chacko, research head, India, WGC, said last month in the update:
Retailers who had been cautious about their inventories in recent months due to lacklustre demand reported active restocking in anticipation of improved festive sales.
Meanwhile, Jain noted a growing investment demand for gold, particularly through ETFs.
This surge is attributed to gold’s superior returns compared to other asset classes.
According to Harshad Ajmera of Kolkata-based wholesaler JJ Gold House, the government’s reduction of GST on consumer goods is expected to increase retail gold purchases.
This is because the tax cut will provide consumers with greater disposable income.
India recently implemented tax reductions on numerous consumer goods, including soaps and small cars.
This measure aims to stimulate domestic demand.
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