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Indian gold demand slowed somewhat in September but already appears to be on the rebound.

Gold demand surged this summer after the Indian government cut taxes on gold and silver imports by more than half, lowering duties from 15 percent to 6 percent. The domestic gold price fell 6 percent month-on-month after the lower duty went into effect, even as the dollar price of gold increased. As expected, the government's move spurred a big jump in gold demand. 

India ranks as the second-biggest gold-consuming country in the world, behind China. 

Demand slowed somewhat last month as the gold price continued to climb. By the end of September, international prices were up by 5 percent. Domestic gold prices mirrored this upward trend and eclipsed the pre-import duty levels.

September and early October are also an “inauspicious” period in the Hindu calendar, meaning a lot of people put off purchases of valuable items. Inauspicious periods generally put a drag on gold demand as jewelry sales drop off.

Analysts at the World Gold Council expect demand to rebound as we head into the next festival season. 

There is also an expectation of increased demand in rural areas as the harvest comes in. A good monsoon season means higher crop yields and more money in farmers’ pockets. Indians tend to store and protect their wealth with gold. 

Even as overall demand sagged somewhat last month, investment demand for gold bars and coins remained strong. According to the World Gold Council, the rise in gold prices and expectations of further increases fueled investment demand.

Reflecting investment bullishness, there was significant growth in Indian gold ETF investment last month. 

Substantial inflows of gold into Indian funds coupled with higher gold prices pushed cumulative assets under management (AUM) for Indian gold ETFs to a record ₹398 billion (US$4.7bn). It was a 7 percent increase month on month and a 67 percent rise from a year ago.  

With the dip in demand, gold imports moderated last month from the unprecedented levels reported in August. The World Gold Council estimates India imported between 55 and 57 tons of gold in September, totaling $4.4 billion. This was down from 136 tons imported in August. Even so, the dollar total was still far above the average of $3.2 billion in gold imports through the first half of 2024. 

From January to August, gold imports increased by 27 percent on an annual basis, totaling $37 billion. In volume terms, the WGC estimates the increase was around 6 percent -- approximately 540 tons.  

Indians have historically had an affinity for gold. Indian households own an estimated 25,000 tons of gold, and that likely understates the amount given the large black market in the country. Gold is deeply interwoven into the country’s marriage ceremonies and cultural rituals. Indians have long valued the yellow metal as a store of wealth, especially in poorer rural regions. Around two-thirds of India’s gold demand comes from beyond the urban centers, where large numbers of people operate outside the tax system.

Gold isn't considered a luxury in India. Even poor Indians buy gold. According to a 2018 ICE 360 survey, one in every two households in India had purchased gold within the last five years. Overall, 87 percent of Indian households own some gold. Even households at the lowest income levels in India hold some of the yellow metal. According to the survey, more than 75 percent of families in the bottom 10 percent of income managed to buy some gold.

The yellow metal was a lifeline for Indians buffeted by the economic storm caused by the government's response to COVID-19. After the Indian government locked down the country, banks tightened credit to mitigate the default risk. Unable to secure traditional loans, Indians used gold to secure financing. As Indians endured a second wave of lockdowns, many Indians resorted to selling gold outright to make ends meet.

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