Gold demand in India is projected to decline this festive season compared to last year, primarily due to soaring prices that are expected to deter jewellery purchases, despite a modest increase in investment demand. This anticipated decrease in demand from the world’s second-largest gold consumer could temper a rally in global prices, which recently reached an all-time high. A reduction in gold imports may potentially keep India’s trade deficit in check and lend support to the Indian rupee.
Local gold prices hit a staggering 109,840 rupees per 10 grams last week, marking a 42% increase year-to-date, following a 21% gain in 2024. Amit Modak, the chief executive of PN Gadgil and Sons, forecasted a volume decline of approximately 10% to 15%, attributing this trend to consumers’ fixed budgets not keeping pace with rising prices.
With the festive occasions of Dussehra and Diwali taking place in October, which are traditionally associated with gold purchases, the timing adds weight to the current market considerations. The December quarter typically accounts for about one-third of India’s annual gold sales, as it coincides with the wedding season and festive celebrations. Last year, gold demand in the December quarter reached 265.8 metric tons, buoyed by a price correction following the Indian government’s reduction of import duties from 15% to 6% to combat smuggling.
Despite these hurdles, consumer sentiment has shown signs of improvement in recent weeks, and in terms of value, overall demand may still rise even if volume decreases. Sachin Jain, CEO of the World Gold Council’s Indian operations, noted that investment demand is particularly strong, especially through exchange-traded funds, as gold continues to yield better returns than other investment avenues.
Furthermore, retail gold purchasing could receive a boost from the government’s recent decision to lower the goods and services tax (GST) on various consumer goods. This move aims to enhance disposable income for consumers, according to Harshad Ajmera of JJ Gold House in Kolkata. The Indian government recently announced tax cuts across hundreds of consumer items to stimulate domestic demand, which could have a positive impact on the gold market in the forthcoming festive season.
