Caixin News, September 20th News (Editor Xiaoxiang) More and more signs show that after India lowered the import tariff on gold this summer, the demand for gold jewelry and gold bars from Indian consumers has surged, which has increasingly become a key driving force behind the soaring global gold price...

Data released by the Indian government this week shows that the import value of gold in India reached $10.06 billion in August, reaching a record high.

According to preliminary estimates by consulting firm Metals Focus, this is equivalent to an import of about 131 tons of gold, which is expected to reach the sixth highest level in history in terms of import volume.

The international gold price has risen by a quarter since the beginning of this year. Usually, high gold prices tend to discourage price-sensitive Asian buyers, but the recent Indian market is obviously "immune" to high prices. We reported last month that the Indian government lowered the import tariff on gold by 9 percentage points at the end of July, which has once again stimulated the demand of the second largest gold consumer in the world.

Philip Newman, general manager of Metals Focus, said, 'The impact of the tariff reduction is unprecedented and incredible. It really attracts consumers.'

The tariff reduction has brought good news to jewelry stores in India. MK Jewelry Store in the upscale community of Bandra West in Mumbai has deeply felt the current strong consumer enthusiasm in India. The store manager, Ram Raimalani, said, 'The current demand is very strong.'

Raimalani expects that during the traditional festival and wedding season from September this year to February next year, the store's sales are expected to increase by 40% year-on-year. Raimalani appreciates the Indian government and Prime Minister Modi for lowering the gold tariff.

The next step will be crucial.

According to the data of the World Gold Council, India's gold jewelry demand last year accounted for about one-third of the global demand and has become the world's second-largest market for gold bars and coins.

However, with the continuous rise in international gold prices, whether the hot demand in the Indian domestic market can be sustained will be crucial. Harshal Barot, senior research consultant at Metals Focus, believes that the current strong demand in the local market means that the domestic gold price in India is rapidly catching up to the level before the tariff reduction.

Barot said, "The benefits of the tariff reduction are about to disappear. Now that prices are still rising, we need to see if consumers will continue to purchase as usual."

According to the data of the World Gold Council, the demand for gold jewelry in India was actually declining before the reduction in import tariffs, reaching the lowest level since 2020 in the first half of 2024.

However, Raimalani expects that regardless of whether the gold price reverses from its historical high, India's jewelry demand will remain strong in the upcoming wedding season.

He said, "The surging gold price has not hindered his customers. When prices rise, Indians are actually the happiest because they already own so much gold. It's like an investment."

In fact, even if private demand cools down, the Reserve Bank of India may continue to be among the central banks globally that are adding to their gold holdings. In the first seven months of this year, the Reserve Bank of India added 42 tons of gold to its reserves, more than twice the annual purchase amount in 2023.

A person familiar with the thinking of the Reserve Bank of India said that buying gold is a 'routine' task for its foreign exchange reserves and currency stability management.

In China, the world's largest consumer of gold, although the increasingly expensive gold price has led to a decrease in the sales of gold jewelry this year, sales of gold bars and coins continue to increase. According to data from the World Gold Council, sales of gold bars and coins in the second quarter increased by 62% compared to the same period last year.

The World Gold Council wrote about China, 'We observe a strong positive correlation between gold investment demand and gold price.'

All of these contribute to supporting the physical market and mitigating the negative impact of high prices on gold demand. Paul Wong, Market Strategist at Sprott Asset Management, said, 'This provides a stable foundation for demand. In some parts of Asia, gold can be easily exchanged for currency, making it a popular savings tool.'