Surge in Domestic Gold Prices Driven by Robust Global Trends and Policy Shifts

Domestic gold prices in India have surged by 10% year-to-date, fueled by global price increases, strong central bank purchases, and policy changes. Increased consumer demand is expected to drive an additional 50 tonnes of gold consumption by the second half of 2024. Gold ETFs also saw significant net inflows in July.

Domestic gold prices in India have risen by 10% year-to-date, buoyed by an 18% surge in global gold prices, robust central bank purchases, heightened geopolitical risks, and expectations of a US Federal Reserve monetary policy pivot, according to the World Gold Council. The reduction in import duty has sparked a resurgence in gold demand across India, with substantial order bookings reported at the India International Jewellery Show, particularly ahead of the festive and wedding seasons.

Manufacturers report orders at levels not seen in years, underscoring strong buying interest from jewelry retailers and consumers. Bar and coin purchasing has remained robust, with both consumers and jewelers taking advantage of more attractive prices to stock up. Historical analysis suggests an additional 50 tonnes of gold consumption could be seen in the second half of 2024.

Indian domestic gold prices have shifted from trading at a discount to international prices to now trading at a premium following the Union Budget announcement. This change has been driven by increased consumer demand and wholesalers selling inventory purchased under the old customs duty regime at a premium to mitigate losses. While premiums have recently moderated, the shift highlights changing market sentiment and the impact of rising international gold prices and potential inventory valuation adjustments.