Gold demand in India surges 18% in Jul-Sept on strong jewellery sales

Demand for gold in India showed no signs of a slowdown in the July-September period this year. A report by the World Gold Council showed the demand surging 18 per cent on year to 248.3 tonnes in the September quarter due to a rise in jewellery consumption and investment in gold.

The global body’s Gold Demand Trends report shows that in terms of value, India's gold demand during the quarter surged 52 per cent on year to Rs 1.65 lakh crore compared with Rs 1.08 lakh crore in the same period last year.

“A sharp cut in gold import duties in July sparked a revival in jewellery demand, which posted its strongest third quarter since 2015,” said Sachin Jain, Chief Executive Officer of World Gold Council India.

Gold Jewellery Sales Rise

India's demand for gold jewellery rose 10 per cent on year to 171.6 tonnes in the September quarter. This included the demand for weddings. “The duty cut negated much of the rise in gold prices during August, which encouraged some early purchases for weddings scheduled over the next couple of quarters, as well as drawing out pent-up demand from previous quarters," Jain said, adding, “Good monsoons also acted as a tailwind for robust growth in lower tier cities and rural areas.”

During Jul-Sept, investment demand for bullion surged 41 per cent on year to 76.7 tonnes, the highest level for the September quarter since 2012. Investor optimism and bullish price expectations were accelerated by the July duty cut-led price correction, which allowed many investors to enter the market.

“India’s gold demand remains solid in the fourth quarter due to Dhanteras and wedding demand, although with the continued rise in the gold price offsetting the impact of the duty cut, we may see an increased trend for investors to wait for price corrections as opportunities to add to their holdings,” the report said.

RBI Shores Up Its Gold Holdings

Gold reserves with the Reserve Bank of India increased 13 tonnes during the September quarter. The RBI has added gold to its reserves on each month of the quarter, adding 13 tonnes in Jul-Sept, marginally lower than the 18 tonnes purchased in both Jan-Mar and Apr-Jun, the report said. Its gold reserves have risen to 854 tonnes as of Sep.30, 6 per cent higher than at the end of 2023, the WGC said. Meanwhile, buying by global central banks slowed in the third quarter, down 49 per cent on year, though demand remained robust at 186.2 tonnes due to a sharp rise in prices, prompting a pause in buying by some central banks and limited tactical selling by others.

Gold Smuggling Dims

The duty cuts on gold have also cut down smuggling, with India's net bullion imports skyrocketing 111.5 per cent on quarter to 360.2 tonnes in Jul-Sept.

“Flows of smuggled gold into India all but disappeared thanks to the duty cut," Jain said. "India is on course for a very strong year, as year-to-date investment is already approaching the annual totals of the past four years. We expect full year gold demand to be in the range of 700-750 tonnes," he said.

Global Demand Down On High Prices

The global demand for gold, meanwhile, rose 5 per cent on year to a record high of 1,313 tonnes in the September quarter. In terms of value, the demand jumped 35 per cent on year to exceed $100 billion for the first time ever.

The major driver of global growth was gold exchange traded funds, which recorded inflows of 95 tonnes, the report said. Jul-Sep was the first quarter of inflows into these funds since the first quarter of 2022. In Jul-Sept 2023, there were outflows of 139 tonnes, the report said.

“A 'fear of missing out factor' amongst investors has been a key driver of increased demand this quarter. Investors have shown an appetite to buy into the price momentum, are encouraged by the prospect of future interest rate decreases, and are also considering gold's role as a safe haven in the face of US political uncertainty and escalating conflicts in the Middle East (West Asia),” said the report.

However, demand for gold jewellery and bar and coin investments fell on a yearly basis. Gold jewellery consumption was 459 tonnes, down 12 per cent on year, despite strong growth in India. Although consumers bought a lower amount of gold, their spending on gold jewellery increased and, therefore, the value of demand for gold jewellery jumped 13 per cent on year to more than $36 billion, according to the council. 

Gold prices averaged a record high of $2,474.3 an ounce in the September quarter, up 28 per cent on year and 6% higher than the previous quarter. "Q3 saw increased investment and over-the-counter activity prop up global gold demand and drive price performance. While the higher gold price dampened demand in the majority of consumer markets, the import duty cut in India kept jewellery and bar and coin demand remarkably high in a record-breaking price environment," Street said.

China, the largest gold importer, saw its weakest third quarter since 2010, with gold jewellery demand 36 per cent below the 10-year average. The country's total gold jewellery consumption fell 33 per cent on year to 103 tonnes, the report showed. However, the largest importer recorded a quarterly increase of 19 per cent from 86.2 tonnes in the June quarter. This increase was attributed to demand during Chinese Valentine's Day, the mid-Autumn festival, and the National Day Holiday.