Gold market heats up: Import duty cut expected to boost demand ahead of festive, wedding season

Gold demand in India: The recent reduction in gold import duties from 15 percent to 6 percent is likely to ignite a significant increase in gold purchases across the country, particularly during the upcoming festive and wedding season. 

The cultural and religious significance of gold, combined with its role as a valuable investment, is expected to drive a substantial uptick in demand. 

Experts expect the allure of yellow metal to reach new heights as the auspicious occasions of the wedding season, Diwali and Akshaya Tritiya, approach.

Duty cut sparks market optimism

The reduction in gold import duties has generated strong buying interest among both jewellery retailers and consumers. MP Ahammed, Chairman of Malabar Group, said, “The significant reduction in import duty, leading to a 6 percent decrease in the domestic landed price, has sparked strong buying interest among both jewellery retailers and consumers.”

Rajeev Yadav, Deputy CEO of AU Small Finance Bank, echoes this sentiment. He shares, “The recent reduction in import duties on gold has significantly boosted its demand in the Indian market. This has led to a notable decline in domestic gold prices, surpassing expectations.”

Festival-driven demand

Gold purchases traditionally peak during festivals like Janmashtami, Diwali, and Akshaya Tritiya in India. Ahammed explains, “Akshaya Tritiya is particularly auspicious for buying gold and silver, symbolising prosperity and abundance, and is associated with the goddess Lakshmi.”

Vikas Singh, MD and CEO at MMTC-PAMP, adds, “The belief that purchases made on this day bring prosperity and good fortune helps drive a surge in demand for gold and silver products.”

Cultural significance

Gold's importance in Indian culture extends beyond its material value. Amit Goel, co-founder and Chief Global Strategist at Pace 360, says, “Gold is often associated with wealth, prosperity, and good fortune in Indian culture. Many Hindus believe that buying gold during festivals like Akshaya Tritiya brings blessings and good fortune and wards off evil.”

Vivek Prasad, Executive Director at Avalon Consulting, points out an evolving trend. He said, “With rising disposable incomes, gold purchases are, to some extent, getting disengaged from occasion buying. People are buying jewellery for regular wear, and a bulk of this is gold jewellery.”

Currency market impact

The gold market is also influenced by currency fluctuations. Jateen Trivedi, VP Research Analyst, Commodity and Currency at LKP Securities, provides insight on the rupee's movement. He said, “The rupee traded within a narrow range of 83.90 to 83.94, with support coming from continued fund flows into the capital markets. Despite the ongoing Middle East conflict, which keeps the rupee under pressure, the capital markets have provided a stabilising influence.” This stability in the currency market could potentially contribute to steadier gold prices for Indian consumers, he added.

The duty cut is expected to have far-reaching effects on the gold market. Naveen Mathur, Director, Commodities & Currencies at Anand Rathi Shares and Stock Brokers, notes, “Reduction in duties is expected to augment imported gold demand through legal channels while containing smuggled gold, thereby leading to incremental demand this year.”

Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), adds, “This also means that the government would be able to capture most of the gold jewellery market sales, and customers can enjoy international gold prices.”

Industry preparations and offerings

Jewellers and gold retailers are gearing up for the anticipated demand surge. Keyur Shah, CEO of Muthoot Exim Pvt Ltd., shares, “We will certainly see an upsurge in our offerings too, including Swarnavarsham.”

MMTC-PAMP is offering “a finely crafted Purest 24K, 99.99%+ Gold bar featuring the revered Goddess Lakshmi, Lotus, Ram Lalla and other wide range of products,” according to Singh.

The recent gold duty cut in India has boosted demand, with significant increases noted during the Wedding Season. Purchases rise due to cultural traditions, religious practices, and the desire for auspicious investments. Trends show higher buying activity and larger purchases as families seek to fulfill these ceremonial requirements, as per Aksha Kamboj, Vice President, India Bullion Jewellers Association (IBJA).

The gold market's dynamics are closely tied to broader economic factors. Sumit Sharma, Founder of Radian Finserv, points out, “The duty cut has also boosted the organised gold loan market, as lower prices have led more consumers to use their gold as collateral for loans.”