Market Update: India’s Gold Demand Drops 17% in March Quarter

India’s Gold Demand Contracts 17% in January-March Quarter Due to Record High Prices and Volatility

The first quarter of 2023 witnessed a significant decline in India’s demand for gold, with a contraction of 17% year-on-year to 112.3 tonnes. This decline can be attributed to the combination of record-high gold prices and increased market volatility. Providing further insight, Somasundaram PR, the CEO of the World Gold Council in India, expressed that the challenges will persist throughout the year, making it difficult for the market to reach the levels seen last year, which amounted to 774 tonnes.

India witnessed a significant decline in gold demand during the January-March quarter, with a contraction of 17% year-on-year to 112.3 tonnes. The surge in gold prices to record highs, coupled with increased market volatility, contributed to this decline. Somasundaram PR, CEO of the World Gold Council in India, stated that the market would face challenges throughout 2023, making it difficult to reach the levels seen in the previous year, which amounted to 774 tonnes.

During an interaction with the media, Somasundaram PR emphasized that the first quarter is typically not favorable for gold in India. The future performance of the market will heavily depend on factors such as the monsoon season and the behavior of gold prices. In terms of value, gold demand experienced a 9% year-on-year decline in the first quarter, totaling Rs 56,220 crore.

Increased Gold Recycling and Smuggling Concerns Impact India’s Gold Market

The surge in gold prices has stimulated gold recycling in India, resulting in a 25% year-on-year increase to 34.8 tonnes during January-March. This trend is expected to continue, with gold recycling potentially reaching close to 100 tonnes in 2023, subsequently reducing the need for imports, according to Somasundram.

In India, where taxes on gold amount to 18.5%, there is a significant propensity for smuggling during months of high demand. Notably, smuggling activities intensify during the October-December quarter, which experiences peak demand. As of Thursday, retail buyers were paying Rs 64,500 for 10 grams of gold, including taxes.

Somasundram mentioned that there is still resistance from a segment of the industry regarding compulsory hallmarking, despite the government’s plans to enforce it for bullion and has made it mandatory for gold jewelry since June 16, 2021.

Recently, regulations for jewelry hallmarking have become even more stringent. The Bureau of Indian Standards (BIS) now prohibits the sale of hallmarked gold jewelry or artifacts without a 6-digit alphanumeric Hallmark Unique Identification Number (HUID) after March 31, 2023.

Somasundram noted that not all sectors of the industry are enthusiastic about these measures.

Globally, gold demand in January-March witnessed a 13% year-on-year contraction, despite significant central bank purchases and a resurgence of demand from China.

During the first quarter, total world gold demand reached 1,080 tonnes, with central banks accounting for 228 tonnes. In the same period last year, central banks purchased 82 tonnes out of the 1,200 tonnes of total demand.

In 2022, central banks acquired 1,000 tonnes of gold out of the global demand of 4,700 tonnes. In 2021, they purchased 456 tonnes out of the 4,000 tonnes sold.

Leave a comment