In 2024, gold reached new heights, achieving record peaks 40 times throughout the year, with various factors influencing its price. However, some key drivers remained constant, particularly central bank purchases. China’s central bank made significant acquisitions early in the year, while the Reserve Bank of India (RBI) maintained a steady buying pace, purchasing an average of 17 tonnes per quarter. In Q3 alone, the RBI acquired 57 tonnes, reflecting strong support for gold.
Geopolitical instability also played a role in driving gold prices. With global uncertainties ongoing, this trend is unlikely to change soon. Western financial institutions engaged in profit-booking in the first half of the year due to high prices, but ETFs have since rebounded. In India, demand for physical gold, such as bars and coins, increased dramatically, with volume rising by 41% and value surging by 83% in the last quarter.
Recent changes in gold taxation by the Indian government have made a major impact. By reducing the arbitrage between domestic and international gold prices, the government has successfully curbed smuggling, ensuring fair competition for organised players. With gold prices in India now nearly aligned with global levels, market transparency and competitiveness have improved significantly.
Jewellery demand worldwide has generally been on the decline, but India’s market experienced a significant recovery. Initially, demand dipped in Q2 due to high prices but surged after the Finance Minister announced a reduction in customs duty. This policy change boosted consumption, with August and September surpassing historical averages. For instance, during Diwali, gold prices crossed $960 per 10 grams, but demand surged in the final days before the festival, indicating the importance of timing in jewellery purchases.
Rural India’s demand for gold remains driven by savings rather than investment, unlike urban areas, where gold is typically bought as an investment. Despite high prices, rural consumers continued purchasing gold as a secure form of savings. Strong monsoons and economic stability further bolstered this trend, with many opting to exchange old gold for new.
Gold ETFs in India have seen remarkable growth, with assets under management (AUM) rising from 40-41 tonnes to 53 tonnes. This growth is mainly attributed to younger, tech-savvy consumers who appreciate the convenience and lack of storage issues associated with ETFs. The lack of physical gold backing and a lower level of consumer confidence have made ETFs a more attractive option for investors.
Looking forward, gold consumption in India is expected to remain strong, with projections between 700-800 tonnes for the year. This represents a significant increase compared to previous years, driven by a combination of investment and jewellery demand. The behavior of Indian consumers, along with favorable government policies such as reduced customs duties, is likely to sustain interest in gold as both a financial and cultural asset. Additionally, digital gold, which allows fractional purchases, is gaining popularity, particularly among younger buyers who value convenience and flexibility, with all digital gold purchases being backed by physical gold.
