No let-up in gold imports likely in 2024 despite high tariffs

2024 is going to an increase in demand for gold, primarily because prices above Rs 60,000 per 10 grams has now become “acceptable” to the market, according to Somasundaram PR, Regional CEO, World Gold Council India. This would lead to a rise in India’s imports of the yellow metal in the short-term, despite recent rise in tariffs. “We believe the biggest driver of gold demand is income growth… a 1% increase in income in the long term leads to 0.9% increase in demand for gold,” he told Priyansh Verma in an interview. Excerpts.

Q. What has led to the recent spurt in gold imports?

A. In e have seen in the first nine months of 2023, the demand has been a little soft. This is primarily due to high prices in the domestic market. It’s a known fact that consumers generally tend to be wary of buying when prices go up. They would like the prices to go up in the long term, but in the short term, they want to be sure that it is not a blip.

This year, the volatility was very high. The prices have been moving up and down. It breached Rs 60,000 (per 10 grams) and now nobody expects anything below. The October-December quarter of any year also sees a rise in demand because of monsoon – which has been good. It has led to stocking up. That’s why there is a spurt in imports. Generally, it’s difficult to link imports with immediate demand.

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There are a lot of jewellers talking about initial public offering (IPO) this year. So overall trade sentiment seems to be high. There is definitely a lag in consumer sentiment as compared to trade sentiment, and that’s what lead to higher imports.

Q. What’s your outlook for gold demand in 2024?

A. There is much interest in gold. Since 2024 is the year of election, there is a chance populist schemes get announced in the Budget, thus leaving more money in the hands of people, particularly in rural areas. This could drive up demand significantly. Also, there is a certain amount of acceptance of high prices now – Rs 60,000 seems to be acceptable now.

We believe in general, the biggest influencer of demand in income growth. 1% increase in income in the long term leads to 0.9% increase in demand for gold. In terms of gold reserves, India currently has 800 tonnes of gold. In the next 5 years, we are expected to reach 1,000 tonnes.

Q. If demand increases in 2024, we can also witness a rise in gold imports…

A. Absolutely. It’s quite possible, demand leads to rise in imports. But there is one more aspect. In the gold market, there is a huge amount of recycling that could come in. Gold supply has two main sources: imports and recycling – which is gold for cash. You can have recycling of a very high order. When we see India must be prepared for a big jump in demand – we also point to recycling. The big jump in demand may happen either in 2024 or 2025. In the short run, however, the rise in demand will lead to a jump in imports.

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Q. Last week the government increased the import duty on gold findings to 15% in line with gold bars. How much will this have an impact on gold imports?

A. Let me clear this, the government raised the duty to plug a loophole. Market participants say that some people were using this particular route to get gold in a different form. Nothing has changed for the gold market essentially. Come from Sports betting site VPbet

Q. The import duty on gold has been rasied from 10% to 15%…

A. The 15% duty is a good thing. It’s an ideal scenario to have this duty for gold, which is low. High duties increase the propensity for the grey market to survive in a very robust manner.

Also, with respect to the grey market, tell me…who sells this gold? If we have good delivery, if we have a BIS (Bureau of India Standards)-registered refiners and if we are saying that the jewellery trade is like getting a lot more organised, why can’t the industry itself build a network where they call out the grey market people. The 15% duty is acceptable to the industry as of now. It’s also not a consumer issue. No consumer knows, or cares about the duty. Consumers are happy if gold prices rise.If the market is able to identify grey market players, and stop it, then in 4-5 years, we’ll see import duties coming down. Right now, the government wants the industry to play its role.

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Q. How do you see the investments in Gold ETFs, or digital gold, going forward? Will it lead to less buying of physical gold?

A. We’ve seen that gold financial investments can be very attractive. But whether it will lead to less physical buying of physical, I can’t say for sure.

Gold ETF (exchange traded fund) is growing particularly in US and European markets. But in India and China, it is stuck in a particular range. That’s because people in urban areas invest in gold.

Even investments in digital gold are growing. We’re at a nascent stage in terms of investments, but it will grow. But this also requires regulation, there is no proper regulatory framework for digital. We’ve made a presentation to the government for the same.

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