Gold has emerged as a top-performing asset in 2024, delivering a 29% return since the beginning of the year, surpassing broad market indices. Comparable gains were last seen during the 2008 global financial crisis and the post-COVID-19 recovery.
Key Drivers of Gold’s Performance:
- Central Bank Purchases: Central banks, including the Reserve Bank of India (RBI), played a pivotal role.
- The RBI bought an average of 17 tonnes per quarter, with a notable 57 tonnes in Q3.
- China’s early-year acquisitions added momentum before slowing in subsequent quarters.
- Geopolitical Instability: Uncertainty globally has driven investors toward gold as a safe haven.
- Consumer Resilience: Indian demand for physical gold (bars and coins) increased by 41% in volume and 83% in value last quarter, reflecting strong consumer confidence.
Impact of Policy Reforms on Gold Prices
The Indian government’s recent reduction in customs duty has brought gold prices in line with global markets.
Benefits of Taxation Reforms:
- Reduced Arbitrage: The gap between domestic and international prices has narrowed, curbing smuggling activities.
- Increased Transparency: Fair competition among organized players has fostered trust in the industry.
- GST Compliance: The reforms have minimized GST losses while enhancing market competitiveness.
Sachin Jain, Regional CEO of the World Gold Council, noted: “These changes demonstrate the government’s commitment to making India’s gold market more structured and transparent.”
Trends in Jewellery Demand
Resilience in 2024:
- Despite an initial dip in Q2 due to high prices, demand surged in Q3 following customs duty reductions.
- August and September saw above-average sales, with a significant uptick during the Diwali season.
Consumer Behavior:
- Price Agnosticism: Indian consumers prioritize gold purchases during auspicious occasions, often irrespective of price.
- Volume and Value Growth: Jewellery consumption increased by 10% in volume and 30% in value during Q3.
Urban vs. Rural Gold Consumption
Urban Demand:
- Primarily investment-driven, with increased interest in gold ETFs and other financial instruments.
Rural Demand:
- Gold is considered a secure savings tool.
- Strong monsoons and economic stability bolstered rural purchases, with many opting to exchange old gold for new.
Rise of Digital Gold and ETFs
Digital Gold:
- Offers flexibility, allowing consumers to buy fractional amounts, such as Rs 50 worth of gold.
- Backed by physical gold but lacks government regulation, raising concerns about misleading schemes.
Gold ETFs:
- Assets under management (AUM) grew from 40 tonnes to 53 tonnes in 2024.
- Younger investors prefer ETFs due to their convenience and storage-free nature.
Sovereign Gold Bonds (SGBs), meanwhile, saw no new issuances this year, leading to a preference shift toward ETFs.
Future of Gold Consumption in India
The outlook for gold in India remains positive, with consumption expected to range between 700-800 tonnes annually. Key factors include:
- Favorable Policies: Reduced customs duties support increased investment and jewellery demand.
- Technological Advancements: Digital gold and ETFs continue to gain traction among tech-savvy consumers.
- Geopolitical Uncertainty: Gold’s status as a safe-haven asset ensures sustained demand.
Sachin Jain emphasized the need for regulatory frameworks to further strengthen consumer trust in digital gold.
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