Gold prices in India are at par with global levels: Sachin Jain, World Gold Council

Gold has given 29% return since the beginning of this year beating broad market indices. The comparable returns were seen during the global financial crisis in 2008 and subsequently post Covid. Sachin Jain, Regional CEO India, World Gold Council, in an interview with Teena Jain Kaushal of Business Today dwells on key trends shaping the gold market, including the rise of digital gold, and government policies aimed at curbing smuggling and ensuring transparency.

Q: What is your outlook for gold in 2025?

In 2024, gold achieved a record 40 peaks due to various factors that changed quarterly. However, some drivers remained consistent. For instance, central bank purchases played a significant role. Early in the year, China’s central bank made substantial acquisitions before slowing down, while other central banks, like the Reserve Bank of India (RBI), maintained a steady pace. The RBI purchased an average of 17 tonnes per quarter, with a notable total of 57 tonnes in the third quarter alone.

Geopolitical instability also influenced gold prices. Given the ongoing uncertainties globally, it is unlikely this trend will change soon. Financial institutions, particularly Western markets, engaged in profit-booking during the first half of the year due to high prices, but ETFs have since rebounded. Indian investors showed resilience, with demand for physical gold such as bars and coins increasing by 41% in volume and 83% in value last quarter. This reflects a growing preference for tangible assets despite rising gold prices.

Q: What impact does the change in custom rates have on the gold prices?

The recent changes in gold taxation by the government have been transformative. By reducing the arbitrage between domestic and international gold prices, the government has significantly curbed smuggling. This not only prevents GST losses but also ensures fair competition for organised players. Now, gold prices in India are almost at par with global levels, making the market more transparent and competitive.

This reform reflects the government’s commitment to making India a cleaner and more structured economy. It’s a big step toward eliminating unscrupulous practices and fostering trust in the industry.

Q: How did jewellery demand evolve in 2024?

Jewellery demand globally has been declining, but India’s market experienced a unique turnaround. Initially, demand slumped in Q2 (April to June) due to high prices, but it picked up significantly after a reduction in customs duty announced by the Finance Minister. This policy change provided a massive boost to consumption, with August and September surpassing historical averages. For instance, during Diwali, gold prices crossed Rs 80,000 per 10 grams, leading to concerns of a slow season. However, consumer demand surged dramatically in the final days before the festival.

Interestingly, many Indian consumers demonstrate price agnosticism when it comes to gold, prioritising purchases during auspicious times or for specific needs like weddings. As a result, jewellery consumption saw a 10% increase in volume during Q3 (July to September), translating to a 30% rise in value.

Q: What trends were observed in rural versus urban gold consumption?

Rural India’s demand for gold is driven by savings rather than investments, contrasting with urban India’s investment-driven approach. Despite high prices, rural consumers continued buying gold as a form of secure savings. Strong monsoons and economic stability in rural areas further bolstered consumption. Consumers opted to exchange old gold for new, indicating sustained confidence in the metal’s value.

Q: What is the status of ETFs and Sovereign Gold Bonds (SGBs) in India?

Gold ETFs in India have seen significant growth. At the start of the year, the assets under management (AUM) were around 40-41 tonnes, which has now risen to 53 tonnes. This growth is noteworthy given the relatively slow adoption of ETFs over the past 15 years. Younger, financially savvy consumers are increasingly favoring ETFs due to their convenience and lack of storage issues.

In contrast, Sovereign Gold Bonds (SGBs) have not seen new issuances this year. While SGBs offered benefits like interest and tax exemptions, their lack of physical gold backing may have impacted consumer confidence. ETFs are emerging as a preferred alternative, with increased awareness and education about their benefits potentially driving further growth.

Q: How do you foresee gold consumption trends moving forward?

Gold consumption in India is expected to remain robust, with projections between 700-800 tonnes for the year. This marks a substantial increase from previous years, driven by a mix of investment and jewellery demand. The unique behavior of Indian consumers, coupled with favorable policies like reduced customs duties, suggests sustained interest in gold as both a financial and cultural asset. Furthermore, technological advancements and geopolitical uncertainties are likely to keep gold’s appeal as a safe haven intact

Q: What is your take on digital gold?

Digital gold has a lot of potential due to its ease of use and flexibility. It allows consumers, especially the younger generation, to buy fractional amounts, like Rs 50 worth of gold or 10 grams, which was not possible earlier. At the World Gold Council, we incubated this concept that any digital gold purchased is backed by physical gold.

While it has been successful and continues to gain acceptance as India becomes more digital, the lack of government regulation is a significant issue. Many players have entered the market with creative yet potentially misleading schemes, like promising unrealistic returns. We have urged the government and regulators to implement a framework to protect consumers. Without regulation, the risk of scams is high, which could damage consumer trust.