Gold imports into India surged to record levels in November as strong demand continued in the wake of government tax cuts.
India ranks as the second-largest gold market in the world.
Gold demand got a big boost in July after the Indian government cut taxes on gold and silver imports by more than half, lowering duties from 15 percent to 6 percent. The move initially pushed prices down by about 6 percent and drove record gold imports in August. The price drop boosted demand for both metals.
According to preliminary data released by the Ministry of Commerce, gold imports totaled $14.8 billion last month. That was more than double October’s total and over four times higher than the same period in 2023.
Based on the Ministry of Commerce data, the World Gold Council estimates India imported between 170 and 180 tons of gold in November. That compares to an average of 63 tons through the first 10 months of the year.
Through the first 11 months of 2024, Indian gold imports are up about 48 percent. Imports are expected to eclipse 800 tons for the year.
Indian Gold Price Action
After an initial drop with the duty reduction, Indian gold prices surged as the yellow metal rose to record levels in dollar terms. But after several months of gains and record highs, gold’s upward price momentum slowed in November. As of mid-December, prices were down about 3 percent in rupee terms from their October peak.
Despite the November price decline, gold remains among the best-performing assets in rupee terms, with year-to-date returns of 22 percent.
Indian Gold Demand
After a surge of buying during the Diwali festival buying season, Indian gold jewelry demand has slowed, but physical investment demand remained robust last month.
High prices and volatility have kept many jewelry buyers on the sidelines in recent weeks, even with the onset of wedding season. However, physical investment demand has shown what the World Gold Council describes as “steady growth.”
Anecdotal reports indicate strong sales of both gold coins and gold bars in November. According to the World Gold Council, “positive sentiment around gold prices and its appeal as an investment asset have likely supported this trend, which is expected to continue.”
We’ve also seen this domestic demand reflected in ETF action. Most major markets reported outflows of gold from ETFs, but Indian funds bucked that trend. Gold ETFs reported net inflows of ₹12.6 billion ($149 million) in November, well above this year’s average monthly inflows.
Collective gold holdings in Indian ETFs are up 56.2 tons on the year, a 35 percent year-on-year increase.
According to the World Gold Council, “The strong inflows into gold ETFs this year underscore heightened investor interest.”
Indian Central Bank Gold Buying
The Reserve Bank of India has ranked among the world’s biggest central bank gold buyers in 2024.
The RSB continued to add gold to its holdings in November, increasing its reserves by another 8.4 tons. It was the 11th straight month of Indian central bank gold purchases.
To date, the Reserve Bank of India has increased its gold reserves by 72.6 tons in 2024.
Gold currently accounts for about 10 percent of India’s total reserves, the highest level since 1999.
An Indian economist told the Times of India that the push to accumulate gold was based on both political and economic reasons. He said that the “reliability” of the U.S. dollar has “diminished.” He noted the “noticeable decline” in the confidence in U.S. dollar assets.
Another economist told the Times, “It makes a lot of sense (to invest in gold), given the increased volatility in the FX market, elevated interest rates in the U.S., and, of course, also as the central banks in each economy would like to diversify the asset classes in which they are parking their reserves.”
India has also been bringing its gold back into the country. Last spring, the Reserve Bank of India repatriated 100 tons of gold, moving it from the UK to vaults within India’s borders, and it recently brought more gold home.
India’s Love Affair With Gold
Indians historically have an affinity for gold. While it’s hard to know for sure exactly how much gold Indians hold because of the amount of metal circulating in the underground economy, the best estimate is that Indian households own more than 25,000 tons of gold.
Gold is deeply interwoven into the country’s marriage ceremonies, along with its religious and cultural rituals. Festival seasons typically boost gold demand.
Indians have long valued the yellow metal as a store of wealth, especially in poorer rural regions. Around two-thirds of India’s gold demand comes from beyond the urban centers, where large numbers of people operate outside the tax system. Many Indians use gold jewelry not only as adornment but as a way to preserve wealth.
In the West, gold is generally viewed as a luxury item. Not in India. Even poor Indians buy gold. According to a 2018 ICE 360 survey, one in every two households in India had purchased gold within the last five years. Overall, 87 percent of Indian households own some gold. Even households at the lowest income levels in India hold some of the yellow metal. According to the survey, more than 75 percent of families in the bottom 10 percent of income managed to buy some gold.
The yellow metal was a lifeline for Indians buffeted by the economic storm caused by the government’s response to COVID-19. After the Indian government locked down the country, banks tightened credit to mitigate the default risk. Unable to secure traditional loans, Indians used gold to secure financing. As Indians endured a second wave of lockdowns, many Indians resorted to selling gold outright to make ends meet.
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