Gold demand in India may hit 900 tonnes this year

The demand for gold in India, which has been in the range of 700-800 tonnes annually since 2019, is expected to increase to 800-900 tonnes in the calendar year 2024 on the back of robust economic growth and higher income, Somasundaram P.R., managing director (India) at the World Gold Council (WGC), told Mint.

However, a pick up in the purchase of gold is expected during the second half of the year, as good monsoons are likely to see a spurt in the demand for the yellow metal and as consumers adjust to higher prices, Somasundaram said.

"There is going to be a spurt in demand for gold after general elections, as people will have more money in hand," he added.

The demand for gold in India stood at 745.7 tonnes during 2023, down 3% from the previous year, as gold prices rose to a record high during the year, the WGC said in a recent report.

Interestingly, demand for the yellow metal was at a four-year low during 2023.

India is a major importer of gold. Switzerland, the United Arab Emirates, Peru, and Ghana are leading gold suppliers to the South Asian country. "I believe there is a strong demand now, but people want to be more comfortable with the price levels. They want a little more stability in prices," he said.

"Now, of course, if there is a price drop, you will have a significant addition to demand, but I think India has moved up by another 100 tonnes (during 2023) in a normative level," Somasundaram added.

Gold prices have seen high volatility during 2023 amid geopolitical conflicts, slowing growth in advanced economies and monetary tightening by central banks amid high inflation.

However, major central banks are expected to cut rates in the second half of the year, which is likely to lead to an increase in demand for the yellow metal.

On Thursday, the price for 10 grams of gold stood at about ₹63,000- ₹64,000.

Earlier in 2023, gold prices crossed the ₹65,000 mark (for 10 gm), up from ₹52,000 to ₹53,000 in 2022. The trajectory is looking high, particularly for India, Somasundaram said. "I expect a spike because India has seen a very muted demand for the last five years," he added.

Indian gold consumption in the Oct-Dec quarter fell 4% annually to 266.2 tonnes, according to WGC estimates. 

While the gold industry is cash-dependent and fragmented, the various initiatives under the Digital India Scheme can ensure the yellow metal becomes a trustworthy asset by eliminating cash from the system, Somasundaram said. 

Indian banks should be allowed to enter into retailing gold, as it will not only give banks big lines of business but also make the jewellery sector competitive, he said.

"In sophisticated financial markets like Germany, banks deal with gold. I think that should be allowed here. This will give banks a big line of business and also make the jewellery sector a lot more competitive," he added. 

Indians can currently buy gold physically in the form of jewellery, coins, gold savings schemes, or through papers like gold exchange-traded funds (Gold ETF), sovereign gold bonds, and digital gold.

As things stand, the cost of owning physical gold is, however, higher than paper gold. Meanwhile, Somasundaram said the government should incentivize recycling of gold, as it is not recycled very transparently in India. "The recycling market in India has to improve," he added.