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cailianshe news, september 20 (editor: xiaoxiang)there are growing signs that a surge in demand for jewellery and bars from indian consumers following a reduction in import duties on gold this summer is increasingly becoming a key driver behind record highs in global gold prices…

india’s gold imports in august hit a record high of $10.06 billion in dollar terms, government data showed this week.

that equates to about 131 tonnes of gold imports, according to preliminary estimates from consultancy metals focus, and is also expected to be the sixth-highest level on record in terms of import volume.

international gold prices have risen by a quarter since the beginning of this year. usually, high gold prices tend to discourage price-sensitive asian buyers, but the indian market has recently been "immune" to high prices.as we reported last month, the indian government's 9 percentage point cut in gold import duties at the end of july is driving another surge in demand in the world's second-largest gold consumer.

philip newman, managing director of metals focus, said:“the impact of the tariff reduction is unprecedented and incredible. it really appeals to consumers.”

the tariff cut has brought good news to indian jewelry stores. mk jewelry store, located in bandra west, an upscale community in mumbai, has deeply felt the current strong consumer enthusiasm of indian people. the store manager ram raimalani said, "the current demand is very hot."

raimalani expects the store's sales to surge 40% year-on-year during the traditional festival and wedding season from september to february next year. raimalani praised the indian government and prime minister narendra modi for reducing gold tariffs.

next will be the key

india accounted for about a third of global gold jewelry demand last year and has become the world's second-largest market for bars and coins, according to industry body the world gold council.

however, as the international gold price continues to rise, whether the hot demand in the indian domestic market can be maintained may become the key. harshal barot, senior research consultant at metals focus, believes that the current hot demand in the local market means that the gold price in india is also rapidly catching up with the level before the tariff reduction.

“the entire benefit of tariff reduction is about to disappear. now prices are still rising, we have to see whether consumers continue to buy as usual,” barot said.

before the import tariff reduction, india's gold jewelry purchases had actually been declining, with demand in the first half of 2024 hitting its lowest level since 2020, according to the world gold council.

however, raimalani expects jewelry demand in india to remain strong during the upcoming wedding season, regardless of whether gold prices retreat from their record highs.

he said,"soaring gold prices haven't deterred his clients. indians are actually the happiest when prices go up because they already own so much gold. it's like an investment."

in fact, even if private demand cools, the reserve bank of india is likely to continue to be among the central banks that have increased their gold holdings. in the first seven months of this year, the reserve bank of india added 42 tons of gold to its gold reserves, more than double the amount it will buy in the whole of 2023.

a person familiar with the rbi’s thinking said buying gold was a “routine” part of its management of foreign exchange reserves and currency stability.

in china, the world's largest gold consumer, this year's more expensive gold prices have meant a drop in gold jewelry sales, but gold bar and coin sales are still rising. according to data from the world gold council, second-quarter gold bar and coin sales surged 62% from the same period last year.

the world gold council writes of china:“we observe a strong positive correlation between gold investment demand and gold prices.”

all of this helps support the physical market, mitigating the negative impact of high prices on gold demand. "this provides a stable foundation for demand," said paul wong, market strategist at sprott asset management. "in parts of asia, gold is becoming a popular savings tool as it is easily convertible back into currency."