China’s increasing gold consumption has dominated headlines this year, but analysts at Australian bank ANZ are cautioning investors to consider India’s robust market, which could sustain prices through the latter half of 2024.
In a recent note, Commodity Strategist Soni Kumari and Senior Commodity Strategist Daniel Hynes emphasized that despite elevated gold prices, India—ranked second globally in gold consumption—shows promising demand. Historically, Indian demand has been sensitive to price fluctuations, typically declining as prices rise. However, this trend has not been evident in early 2024.
ANZ highlighted that their analysis indicates a 0.6% reduction in gold demand for every 1% price increase. Although higher prices have somewhat curtailed demand, the impact has been less pronounced over the past year. In 2023, gold prices surged over 10%, yet consumer demand remained resilient at 760 tons, reflecting only a slight year-on-year decrease of 2% and aligning with the long-term average of 755 tons from 2013 to 2022.
From January to May 2024, India’s gold imports rose by 26% year-on-year, totaling 230 tons, even as prices surpassed $2,450 an ounce.
The analysts attribute this sustained demand to significant structural changes in India’s economy, particularly in the jewelry sector. Factors such as increased capital gains and income growth are helping consumers adapt to higher prices. With projections suggesting a more than 60% rise in per capita income to USD 4,000 by 2030, along with urbanization and an expanding middle class, demand for physical gold is expected to remain strong.
Additionally, favorable weather conditions anticipated from June to September are expected to enhance agricultural yields, providing farmers with increased disposable income to purchase gold.
The potential for government action to reduce gold import duties further supports the outlook. With India’s current account deficit at 1%, there is optimism for a 5% cut in import duties in the upcoming Union Budget, which could significantly boost gold imports.
Moreover, the Reserve Bank of India has been diversifying its foreign reserves, purchasing 37 tons of gold in the first half of 2024, making it the second-largest buyer this year, surpassing China’s central bank.
In light of these dynamics, Kumari and Hynes predict that gold prices could rise to $2,500 an ounce by year-end, as both India and China remain pivotal players in the gold market.
