Union Finance Minister Nirmala Sitharaman announced significant changes to import duties on gold and silver in the Union Budget 2024-25. To increase domestic value addition in the production of gold and precious metal jewellery, Sitharaman in her budget speech proposed lowering the customs duties on gold and silver to 6 per cent.
According to the World Gold Council’s (WGC) ‘Gold Demand Trends Q2 2024’ report the custom duty announcements of Budget 2024 may prompt a revival in gold jewellery demand in the third quarter of 2024.
Gold Demand Outlook in Q2
Record high gold prices heavily impacted the Indian gold jewellery demand in the second quarter of 2024, the latest World Gold Council (WGC) report states. According to ‘Gold Demand Trends Q2 2024’ findings the demand for gold jewellery fell 17 per cent year-on-year to 107 tonnes in the second quarter this year - marking up the weakest second quarter since the Covid-affected Q2 2021. Moreover, the H1 demand of 202 tonnes was reportedly the lowest since 2020.
Despite the sharp downturn in demand, the broader domestic economic environment remains optimistic with GDP growth forecasted at 7 per cent.
As per WGC, although gold prices receded in June from their May peak, they stayed above the significant Rs 70,000 per gram mark, keeping demand low, as visible in the continued discount in local prices throughout the quarter.
Along with the record gold price, several other factors contributed to the relatively weak Q2 such as the recent Lok Sabha elections, and record temperatures.
“The national elections from mid-April to early June proved disruptive to gold jewellery consumption, as did the severe heatwave that saw record temperatures in Delhi at the end of May,” WGC states. However, the Akshaya Tritiya festival, considered one of the most important gold-buying occasions in the country, boosted a resurgence in demand in mid-May.
The WGC cites a few signs of distress selling of gold jewellery by Indian consumers wherein recycling activity has been dominated by gold-for-gold exchange, rather than outright sales.
There also has been growth in gold loans using jewellery as collateral, “such activity was reportedly up 30 per cent year-on-year by the end of May,” the report finds.
Budget 2024’s Impact on Gold Jewellery Demand
In the Union Budget 2024-25, presented on 23 July, the government slashed the import duty on gold and other metals. Finance Minister Sitharaman announced a cut in total import duty on gold bars from 15 per cent to just 6 per cent, and on gold dorè from 14.35 per cent to 5.35 per cent.
“The change is likely to prompt a revival in gold jewellery demand in Q3 as the lower price of imported gold feeds through to consumers at the retail level before seasonal festive buying begins,” the WGC has stated in its report. It further opines that a healthy monsoon could also add to the positive momentum in domestic economic growth and further support demand in the third quarter.
However, the Council notes that any further sharp rises in the gold price would likely mitigate the positive effects of the cut in customs duty, at least temporarily, until consumers become accustomed to new, higher levels.
