Main lessons
- Record gold imports worth $10 billion (€8.97 billion)) in August, three times more than in July.
- India imported 140 tonnes of gold in August, three times more than in July.
- Indian households own about 25,000 tonnes of gold.
Gold imports into India hit record highs in August, following a significant reduction in import duties the previous month. The increase is attributed to the Indian government’s decision to more than halve taxes on gold and silver imports, cutting the duty from 15 percent to 6 percent.
The tariff cut led to an immediate decline in domestic gold prices, which fell 6 percent from the previous month, even as global gold prices rose. This price decline fueled a substantial increase in demand for gold in India, resulting in record gold imports worth $10 billion (€8.97 billion) in August, three times more than in July.
Impact on gold demand and imports
The World Gold Council estimates that India imported 140 tonnes of gold in August, three times more than in July. The surge pushed total gold imports for 2024 to be up 30 percent from a year earlier. While gold prices in rupee terms initially fluctuated after the import duty cut, they eventually stabilised and largely mirrored movements in international gold prices.
Domestic demand for gold, including coins, bars and jewellery, saw a surge following the tariff cut. While this dynamic has since levelled off, market reports indicate continued “healthy” buying activity, with purchases increasing overall prior to the import duty cut.
India’s Affinity for Gold
Anecdotal evidence suggests a robust start to buying during the festival season, which is further bolstering gold demand. Rural gold buying has also shown a recent improvement, attributed to a favourable monsoon season that is expected to boost agricultural production and provide additional income to farmers, likely contributing to the increase in gold demand in the coming months.
Indian gold ETFs have seen strong inflows into the metal, reflecting strong investor interest in gold. August saw record monthly inflows into India-based gold funds, adding around 9.5 tonnes of gold so far in 2024. Total assets under management by Indian gold ETFs reached INR 374 billion (EUR 3.95 billion), representing an increase of 8 per cent month-on-month and 54 per cent year-on-year.
Investors’ interest and RBI’s gold reserves
The Reserve Bank of India (RBI) is continuing its trend of accumulating gold reserves, adding 50 tonnes this year, taking its total holdings to a record high of 853.6 tonnes. Gold now accounts for 9 per cent of the RBI’s foreign reserves, up from 7.5 per cent a year ago.
Economists cite political and economic factors that are pushing India to accumulate gold, pointing to the declining reliability of the US dollar and a notable decline in confidence in US dollar-denominated assets. They also point to increased volatility in the foreign exchange market, high interest rates in the US and diversification strategies adopted by central banks globally.
Cultural significance of gold in India
India’s historical affinity for gold is well established. Indian households own about 25,000 tonnes of gold, a figure likely underestimated due to the existence of a large black market. Gold plays a crucial role in Indian wedding ceremonies and cultural rituals, seen as a safe store of wealth, particularly in rural areas where people often operate outside the formal financial system.
Gold is not considered a luxury item in India; even low-income earners buy it. A 2018 study by ICE 360 found that nearly half of Indian households had purchased gold in the past five years, and 87 percent of them owned gold. Even the lowest-income households hold gold, underscoring its importance as a financial safety net. During the economic turmoil caused by India’s response to COVID-19, gold has served as a lifeline for many Indians.
When banks tightened credit to manage the risk of default during lockdowns, Indians turned to gold for financing. During subsequent lockdowns, many resorted to selling gold to meet their financial needs.
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