The global gold market may experience a significant divergence in demand between its two largest consumers in the latter half of the year.
On Tuesday, India’s Finance Minister Nirmala Sitharaman announced a substantial reduction in the import tax on gold and silver from the current 15% to just 6%. This move is aimed at enhancing domestic value addition in the gold and precious metal jewelry sectors.
“By lowering customs duties on gold and silver, we hope to foster domestic value addition and reduce smuggling,” Sitharaman stated during her budget speech. Analysts anticipate that this tax cut will stimulate further demand in India, which has already shown robust consumption despite record-high gold prices.
Sachin Jain, CEO of the World Gold Council’s Indian operations, commented to Reuters that this tax reduction will help balance India’s gold market and is a positive step for the industry. Commodity Strategist Soni Kumari of ANZ also predicted that increased demand from India would provide significant support for global gold prices.
In contrast, Chinese demand for gold is showing signs of slowing down after a period of unprecedented consumption. Analysts observed that China’s voracious appetite for gold contributed to record highs last month, with prices exceeding $2,480 an ounce. However, recent trade data reveals a sharp decline in Chinese gold imports, falling to their lowest level in over two years.
BMO Capital Markets analysts noted that this drop in imports has led Shanghai spot prices to trade at a rare discount compared to international benchmarks. Additionally, the People’s Bank of China (PBoC) did not increase its gold reserves in May and June, ending an 18-month period of aggressive purchases.
BMO analysts predict that while the PBoC is likely to resume its gold-buying activities, retail demand in China may face challenges. “The PBoC is expected to return to the gold market in the coming months to bolster its reserves,” they said. “However, it may take time for the broader consumer base to adjust to the higher gold prices.”
As India’s gold market gains momentum from reduced import taxes, and China’s demand shows signs of slowing, the global gold market could witness a notable divergence in demand patterns.
