Gold Demand Trends Q2 2024 - India

Gold jewellery is still highly sought after

Indian gold jewelry demand faced a significant decline in Q2, dropping 17% year-on-year to 107 tons—the lowest second quarter since the pandemic-hit Q2 of 2021. H1 demand at 202 tons marks the weakest since 2020. Despite this sharp decline, the domestic economic outlook remains positive, with GDP growth forecasted at 7%, and a recovery signaled by rising sales of two-wheelers and FMCG products in the crucial rural sector.

Although gold prices eased in June from their May peak, they remained above the key psychological level of Rs70,000/g, keeping demand suppressed, as reflected in the ongoing local price discount during the quarter. Several other factors also contributed to the weak Q2 demand, including disruptions from national elections from mid-April to early June and a severe heatwave that hit record temperatures in Delhi in late May.

The Akshaya Tritiya festival in mid-May, traditionally a major gold-buying event in India, saw a temporary surge in demand, with reports indicating stronger-than-expected activity in both urban and rural areas. However, this boost was short-lived, with demand declining rapidly thereafter.

Positively, there are few signs of distress sales of gold jewelry by Indian consumers, with recycling largely driven by gold-for-gold exchanges rather than outright sales. Notably, gold loans secured by jewelry surged, with a reported 30% year-on-year increase by the end of May.

In recent developments, the government’s 2024-25 budget, presented on July 23, significantly reduced import duties on gold and other metals. Finance Minister Nirmala Sitharaman announced cuts in total import duty on gold bars from 15% to 6% and on gold dorè from 14.35% to 5.35%, effective from July 24. This reduction is expected to boost gold jewelry demand in Q3 as lower imported gold prices reach consumers ahead of the festive season.

A favorable monsoon is expected to further support domestic economic growth and demand in Q3. However, any sharp increases in gold prices could temporarily offset the positive impact of the customs duty cut until consumers adjust to higher price levels.

On a side note, looking at the Invesco India Gold ETF, returns from the past 5 years are around 83%. From end 2019, the Invesco India Gold ETF increased from 3,500INR to over 6000INR in 2024.

Invesco India Gold ETF chart