Gold Rush in India: Duty Cut Ignites Massive Buying Spree

India's love affair with gold has reached a fever pitch, fueled by a recent government decision to slash import duties on the precious metal. The move, announced just weeks ago, has sent shockwaves through the market, triggering a surge in demand that is reminiscent of the country's historic gold obsession.

Key Takeaways

• India's gold demand surges: Recent reduction in import duty has sparked a significant increase in gold purchases.
• Domestic gold prices fluctuate: Prices have dropped due to lower import duty but remain elevated year-to-date due to global factors.
• Investment in gold ETFs grows: Tax benefits and increasing gold prices have driven investments in gold ETFs.
• RBI expands gold reserves: India's central bank continues to buy gold, boosting its reserves.
• Positive outlook for gold demand: The World Gold Council predicts a 50-tonne increase in gold demand in the second half of 2024.

According to a new report by the World Gold Council, the import duty reduction has led to a 6% month-on-month drop in domestic gold prices, making the yellow metal more affordable for consumers. This, coupled with the ongoing festive season, has created a perfect storm for gold sales. "Anecdotal reports suggest that there has been strong buying interest from jewellery retailers as well as consumers since the duty reduction," the report states.

The allure of gold as an investment has also grown stronger. Gold ETFs (Exchange-Traded Funds) have witnessed substantial inflows, with July recording the highest monthly inflows since February 2020. The report attributes this to recent tax benefits introduced for long-term gold ETF investments.

India's central bank, the Reserve Bank of India (RBI), has also been actively participating in the gold market. The RBI has been steadily increasing its gold reserves, reflecting a strategic move to diversify its foreign exchange holdings.

However, the World Gold Council cautions that while the current gold rush is exhilarating, it's essential to maintain a long-term perspective. Global factors, such as geopolitical tensions and central bank policies, continue to influence gold prices.

The report concludes by projecting that the combined impact of the import duty cut and other supportive measures could boost India's gold demand by an additional 50 tonnes in the second half of 2024.

Experts believe that the current gold frenzy is likely to persist in the near term, driven by both consumer sentiment and investor interest. However, the sustainability of this trend will depend on factors such as economic growth, inflation, and global market conditions.

Source: World Gold Council