Surge in Gold Prices Despite Cut in Import Duty, Will Demand Peak During Festive & Wedding Season?

In the past month, gold prices in the country have risen by Rs 3,465 per 10 grams, reaching Rs 74,553 per 10 grams. While the reduction in import duty in the recent budget initially seemed to promise lower prices, the opposite has occurred. Despite this rise, experts are optimistic that gold demand will hit record highs during the upcoming festive season.

Impact of Import Duty Reduction

The government's decision to reduce the import duty on gold has made it easier to bring the precious metal into the country. This ease of importation has resulted in a wider distribution of gold to jewelers nationwide. According to estimates, the demand for gold is expected to rise by more than 30% during the festive season. Following the duty reduction, India’s gold imports in August increased by more than three times compared to the previous month.

The Ministry of Commerce reported that gold imports in August were valued at $10.06 billion (Rs 84,453.7 crore), a sharp rise from $3.13 billion (Rs 26,276.35 crore) in July. The primary reason for this surge in imports is the anticipated high demand during the festive season. The general budget had lowered the import duty on gold from 15% to 6%, a move that has significantly boosted the availability of gold.

Global Market Influences and Festive Demand

Experts suggest that a fall in global gold prices is another factor contributing to increased demand. They believe that this trend will persist during the festive season as gold becomes more accessible through legal import channels. Vipul Shah, Chairman of the Gems and Jewellery Export Promotion Council, stated, “Due to the reduction in import duty, the inflow of gold from abroad has increased significantly.”

Wedding Season to Boost Gold Sales

The Confederation of All India Traders (CAIT) has forecasted that approximately 42 lakh weddings will take place in November and December. The estimated expenditure on these weddings is around Rs 5.5 lakh crore, with a significant portion of this spending allocated to the purchase of jewellery. Jewellery, alongside coins and bars, remains a popular investment during the festive and wedding season.

The demand for gold in the country during the festive and wedding seasons could rise by as much as 30% compared to last year. Moreover, some investors are shifting funds from the stock market into gold to safeguard their investments in anticipation of market corrections.

Gold ETFs Witness a Surge in Investment

Investment in gold exchange-traded funds (ETFs) has also seen a notable increase. Net inflows into gold ETFs surged by 80% in June, reaching Rs 13,400 crore in July. 

According to the Reserve Bank of India (RBI), the trend of gold investment is expected to continue. By August, the RBI had purchased 8.2 tonnes of gold, bringing its total gold acquisitions for the year to 44.3 tonnes—the highest in two years. This brings the total gold held by the RBI to 849 tonnes.

Looking ahead, the combination of lower import duties, increased availability of gold through legal channels, and heightened demand during the festive and wedding seasons is expected to keep gold prices high.