Kaia
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The duty cut announced in last week's annual budget is likely to drive the demand for gold to 750 tonnes during the calendar year 2024, with the upcoming festive seasons expected to drive up consumption of the yellow metal, Sachin Jain, chief executive (India), World Gold Council (WGC), told Kaia.
Demand for gold in India, which was down 5% annually to 149.7 tonnes during the recently concluded April-June quarter of CY24, according to WGC data, is expected to recover strongly during the upcoming October-December quarter, traditionally the strongest quarter for jewellers due to various festivals held during the period.
Jewellery demand in India during this period fell annually by 17% to 106.5 tonnes.
"Now, what's happened is that quarter two, in particular, has been quite down from a jewellery consumption perspective," Jain said.
"We believe consumers will come back to the market with a big stride. And this should really propel Q3 (July-September), and most importantly, Q4 (October-December)," Jain added.
During 2023, gold demand in India was at 745.7 tonnes, down 3% year-on-year, according to WGC.
This fall in demand, at a four-year low, was attributed to higher prices.
"The demand for gold in terms of volumes will be between 700 to 750 tonnes (during 2024). And we think towards the upper side of 750, but we'll see how these things come forward," Jain said.
Last week, finance minister Nirmala Sitharaman, in the Union budget, proposed a sharp cut in the import duties on gold and silver bars from 15% to 6%, on gold and silver dore from 14.35% to 5.35%, and on platinum from 15.4% to 6%.
This sector is also crucial for the economy as it provides significant employment and contributes substantially to exports.
On 28 July, Kaia reported quoting trade analysts that the objective behind reducing the duties is to balance the inflow of cheaper bullion.
India imports gold mainly from Switzerland, the UAE, South Africa, Peru and Australia.
But, gold from the UAE is substantially cheaper as it enjoys zero tariffs due to the free trade deal between the two countries.
The yellow metal crossed the RS.65,000-mark (for 10 gm) in 2023 from RS.52,000-53,000 in 2022.
This year, prices have climbed further. However, in recent weeks, gold prices declined from the highs witnessed earlier in the year.
On 31 July, 10 gm of gold (24K) cost rs.70,260 in New Delhi.
Meanwhile, along with the duty cut, the reduction of long-term capital gains tax on gold—from 20% with indexation to 12.5% without indexation—and the easing of the holding period for taxation of long-term capital gains on gold— from 36 months to 24 months—in the union budget is expected to add at least 50 tonnes to India's gold demand in during the second half of CY 2024, according to a WGC report.
"So gold is not a new instrument or new asset class. And with the performance
of gold over the last 12 to 18 months, it's very clear that it has a phenomenal return on investment. And backed by ETFs and other forms of digital instruments, it's going to be a propeller," Jain added.