India’s gold The market is experiencing a remarkable transformation, shaped by a complex interplay of policy changes, global economic dynamics, and deeply rooted cultural traditions. From the reduction in import duties to the evolving landscape of gold consumption in India, several key factors emerge as primary drivers of change and resilience.
Global dynamics, policy impact and market response
The recent reduction in import duty on gold from 15 per cent to 6 per cent marks a turning point in India’s gold market. This strategic policy intervention, aimed at curbing illegal imports and strengthening the formal gold market, triggered immediate market responses. Following this announcement during the Budget in July of this year, gold prices fell from ₹75-76,000 to ₹69-71,000 per 10 grams across India. This led to an upsurge in demand for this precious metal.
Additionally, gold imports surged as both consumers and traders moved to capitalize on reduced costs. According to the World Gold Council (WGC), India’s import of the yellow metal doubled YoY to over $10 billion in August 2024 and until September, large jewelers saw an uptick of 20 per cent jump in revenue and same-store sales. This policy shift had temporarily eased the premium on domestic gold prices, making the precious metal more accessible to a broader demographic.
The global context plays a crucial role in shaping India’s gold market. Current geopolitical adventures, including the Red Sea crisis, the Russia–Ukraine war, and the Israel–Palestine conflict, have intensified economic uncertainties. These global developments have prompted central banks worldwide to increase their gold holdings significantly, viewing it as a safe-haven asset. This has pushed gold prices from approximately ₹55,017 per 10 grams in 2022 to around ₹80,330 per 10 grams in 2024, reflecting a sustained upward trajectory. The WGC noted in July 2024, the purchase of gold by central banks peaked to 37 tonnes and it dropped to just 8 tonnes in August.
Resilient consumer behavior
This year, despite the record-high gold prices, which have risen over 25 per cent since last year, signs of festive buying remain, primarily driven by wedding purchases and cultural traditions surrounding gold gifting. The traditional pattern of festive gold purchases is undergoing a significant transformation. While festivals like Diwali, Dhanteras, and Akshaya Tritiya continue to drive substantial sales, consumer behavior has become more sophisticated.
The market is witnessing a growing sophistication in investment approaches. While physical gold remains paramount, there’s increasing interest in gold ETFs and digital gold investments, particularly among urban consumers. This trend reflects a broader evolution where gold’s role as both a cultural symbol and a financial asset is being redefined.
Buyers are increasingly spreading their purchases throughout the year. Most customers are either holding their spending for 7-10 days or advancing their purchases. Others may wait for prices to stabilize or even fall. However, the demand remains strong, demonstrating a more calculated approach to gold acquisition while maintaining cultural commitments.
The semi-urban and rural areas continue to be a source of anticipated demand. As income improves, consumers from Tier 2 and 3 areas are anticipated to play a significant role in the festive buying spree, and their purchasing power is crucial for sustaining demand amid high prices.
Additionally, the festive season also heralds the wedding season in India. The demand for gold jewelery during this time often peaks, along with purchasing, gifting and investing in gold for the newly-wed by their family and friends. Not surprisingly, marriages contribute to around half of India’s annual gold demand. Along with this, traditional rituals during childbirth, and naming ceremonies which can take place any time of the year also give value to this precious metal due to its significance and are considered as a blessing.
Retailers too are remaining upbeat, despite the high price of gold by offering incentives and innovative purchase schemes including reducing making charges by some jewellers. By recognizing consumer trends and launching targeted campaigns, India’s gold market demonstrates remarkable resilience.
The transformation of India’s gold market reflects a broader evolution in consumer behavior and market dynamics. While traditional festive demand remains a crucial driver, the market is increasingly characterized by year-round purchasing patterns, growing investment sophistication, and a balance between cultural significance and financial prudence.
As we navigate these evolving dynamics, it’s clear that festive trends will continue to play a pivotal role in shaping India’s gold market. The sector’s ability to adapt while maintaining its cultural essence suggests a robust future where tradition and transformation coexist harmoniously, creating new opportunities for both consumers and retailers in this dynamic market landscape.
(The author is Managing Director & CEO at MMTC-PAMP)