By Mr. Colin Shah
Gold has traditionally been India’s favourite precious metal. Be it in sentimental value or monetary, gold has always garnered interest from across the investor spectrum of the country. According to projections by the World Gold Council (WGC), India’s gold demand, which has been hovering between the 700 and 800 metric ton marks in the past five years, will break out of this range and rise to between 800 and 900 tons in 2024.
However, being one of the most desired asset classes, gold is also susceptible to various economic factors such as movement in USD, geo-political conditions, inflation, and other forces affecting price dynamics.
The past year has been a roller-coaster ride for the yellow metal as gold prices saw volatility throughout the year. Amidst this volatile period, gold managed to touch a new high of Rs 61,845/10 gm in May 2023 in the domestic market, whereas in global markets, the price touched USD 2,083/ounce. This trend continued with the precious metal reaching another high of Rs 61,914/10 gm in November 2023. Come from Sports betting site VPbet
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As per World Gold Council, in terms of demand for gold jewellery, a drop of 6% was seen in 2023 which took the volume of consumption to 562.3 tonnes compared to 600.6 tonnes in the previous year. However, the demand for total gold investment in the country grew by 7% to 185.2 tonnes, compared to 173.6 tonnes in the 2023, as per the data by WGC report. Additionally, total gold imported to India saw a rise by 20% in CY23 which stood at 780.7 tonnes compared to 650.7 tonnes in CY22, according to the WGC report.
How big of a role is price dynamic going to play in gold demand for 2024?
Gold prices have been range-bound since the start of the year hovering around Rs 62,000 domestically. Demand for gold in India should benefit from ongoing positive economic conditions and if the prices hold out are not significantly volatile there is likely to be a big spurt in demand. This could be anywhere between 800-900 tonnes. However, price dynamics will be the key thing to watch out for in the remnant of this year.
Rising prices will undoubtedly exert a downward pull on demand, even with the zenith of the wedding season at play. However, while reports suggest volumes in purchase are down from previous years, weddings will continue to drive some necessary purchases well into 2024.
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It must be noted that discretionary spending on gold seems to have gone down. Store visits have been declining since the end of last year. Such cautious behaviour can be seen not just in the retail buyers, but in the jewellers too; high prices are limiting their hunger for inventory building efforts.
Data suggests that income and price are going to remain the primary drivers of gold demand in India for the coming year. While rising income (represented by growing gross national income) is a positive indicator, higher prices tend to act as a counterweight. Models suggest that a 1% increase in income could lead to a 0.9% increase in demand, while a 1% price increase would decrease demand by 0.4%. Although the price impact is smaller in percentage terms, its larger short-term fluctuations often have a more immediate effect on overall demand.
Overall, we foresee a staggered but steady performance of the yellow metal influenced by occasional economic catapults, both globally and domestically. A majority of this factor will be driven by the redefined approach utilising the yellow metal for adornment purpose rather than investment, especially at the domestic level.
(Colin Shah, MD of Kama Jewelry. Views expressed are the author’s own. Please consult your financial advisor before investing.)
