India reduced gold import tariffs last month, and the country's gold imports in August reached a record high. India is the world's second-largest consumer of gold, second only to China.

In July this year, the Indian government reduced the import tax on gold and silver by more than half, from 15% to 6%. After the reduction of tariffs, the domestic gold price in India fell by 6% month-on-month, while the gold price in US dollars rose. As expected, this measure by the Indian government has greatly stimulated the surge in gold demand.

India reported that the total value of gold imports in August, calculated in US dollars, reached a record high of $10 billion. This is more than three times the increase compared to the previous month. According to the World Gold Council's estimate, the country imported 140 tons of gold, three times the total import volume in July. So far, India's gold imports in 2024 have increased by 30%.

The price of gold denominated in rupees plummeted after the reduction of import taxes, and then stabilized, largely in line with international gold prices. In terms of rupees, the gold price rose by 3.9% in August. Despite the increase in the gold price in August, the domestic gold price in India is still about 2% lower than before the reduction of import taxes.

According to the World Gold Council, India's domestic demand for gold coins, gold bars, and jewelry surged after the reduction of import tariffs, and then stabilized. Market reports show that buying momentum remains strong and had already been increasing overall before the reduction of import tariffs.

Industry insiders expect this momentum to continue, but they are closely monitoring sales during the key holiday season and wedding season from the end of August to December. Evidence suggests that festival purchases have kicked off in a strong atmosphere.

The World Gold Council also reported that the gold purchasing situation in rural India has improved in recent months. A favorable monsoon season is expected to increase crop yields, and farmers' additional income may boost gold demand in autumn. India fund inc continues to report inflows of gold, proving investors' strong interest in gold. According to the World Gold Council's estimate, the gold inflow of india fund inc in August set a record high monthly level.

So far, the India Gold ETF in 2024 has increased its shareholding by about 9.5 tons of gold. According to the data from the World Gold Council, the total assets managed by India Gold ETF have increased to 374 billion Indian Rupees (4.4 billion USD), with a monthly increase of 8% and a year-on-year increase of 54%.

The Reserve Bank of India also continues to increase its gold reserves. According to the latest data, the Reserve Bank of India has increased its gold holdings by 50 tons this year. Since 2017, the Reserve Bank of India has been purchasing gold, increasing its gold holdings by over 260 tons during this period. The Reserve Bank of India currently holds a record 853.6 tons of gold, accounting for 9% of its forex reserves, up from 7.5% a year ago.

An Indian economist told the Times of India that the reasons driving India to accumulate gold are both political and economic. He said that the reliability of the US dollar has decreased. Confidence in US dollar assets has 'significantly dropped.' Another economist told The Times: 'Considering the increased volatility in the forex market, rising US interest rates, of course, central banks of various economies also hope to diversify the categories of assets in their reserves, making (investing in gold) very meaningful.'

Last spring, the Reserve Bank of India brought back 100 tons of gold from the United Kingdom to India. Indians have always had a fondness for gold. It is estimated that Indian households own 25,000 tons of gold, a number that is likely underestimated considering the country's vast black market. Gold is deeply intertwined with marriage ceremonies and cultural rituals in the country.

For a long time, Indians, especially in relatively poor rural areas, have valued gold as a store of wealth. About two-thirds of India's gold demand comes from areas outside urban centers, where many people operate outside the tax system.

In India, gold is not seen as luxury goods. Even poor Indians will buy gold. According to a 2018 ICE 360 survey, one in every two Indian households has purchased gold in the past five years. Overall, 87% of Indian households own some gold. Even the lowest-income Indian families hold some gold. The survey shows that over 75% of the lowest-income 10% households managed to buy some gold.

The Indian government's response to the COVID-19 pandemic has triggered an economic storm, and for the impacted Indians, gold is their lifeline. After the Indian government locked down the country, banks tightened crediting to reduce default risk. Unable to access traditional loans, Indians used gold to secure financing. As Indians faced a second wave of lockdowns, many had to sell gold directly to make ends meet.