India Gold Demand Forecast to Weaken During Festival Season
India's gold demand during this year's festival season is projected to be weaker than last year, as record gold prices are likely to dampen jewelry purchases, offsetting modest growth in investment demand. This, in turn, may limit the rise in global gold prices, which recently hit all-time highs, especially since India is the world's second-largest gold consumer. However, weaker gold imports may help narrow India's trade deficit and support the rupee's exchange rate.
High Prices Weigh on Consumers
Last week, local gold prices in India surged to a historic peak of 109,840 rupees per 10 grams, a cumulative increase of 42% this year, and 21% in 2025. Amit Modak, CEO of PN Gadgil and Sons, stated on the sidelines of the India Gold Conference in New Delhi: "Consumer budgets are fixed, and it is difficult for them to keep up with rising gold prices. We expect a decline in physical demand of about 10%-15%."
India celebrates Dussehra and Diwali in October, and purchasing gold during these festivals is considered auspicious. The fourth quarter typically accounts for one-third of India's gold sales, coinciding with the wedding and festive seasons. In the same period of 2024, India's gold demand reached 265.8 tons, mainly driven by pre-festival price corrections when the Indian government significantly reduced import duties on gold from 15% to 6% to combat smuggling.
Structural Shift in Consumer Behavior
Despite continuously rising gold prices, consumer sentiment in India has improved in recent weeks. Sachin Jain, CEO of the India region at the World Gold Council, noted that "If calculated by value, even if the physical volume decreases, demand will still be significantly higher than last year." He added that investment demand (especially gold-backed ETFs) continues to rise due to gold's outperformance compared to other asset classes. In the first quarter of 2025, the size of gold-backed ETFs in India approached 160 billion rupees, a significant increase from the beginning of the year, reflecting investors' long-term gold allocation intentions.
Meanwhile, consumer behavior shows a structural adjustment: a significant contraction in non-essential jewelry consumption, while essential wedding needs maintain resilience through lightweight designs (such as 18K gold jewelry) and exchange programs.
Challenges Facing the Retail Market
The Indian government's recent announcement of excise duty reductions may partially boost retail demand. However, analysts point out that "the bonus of tariff reduction was released in a concentrated manner in 2024," with gold imports from January to May 2025 decreasing by 27% year-on-year, indicating a diminishing policy stimulus effect.
The Role of the Central Bank
It is worth noting that the Reserve Bank of India (RBI) has continuously increased its gold holdings in 2025, with gold purchases in the first three quarters reaching 289 tons, a record for the same period, highlighting gold's status as a strategic reserve asset.
However, the retail market still faces the dual pressures of "high gold prices and weak consumption": jewelry consumption in the first quarter of 2025 decreased by 25% year-on-year to 71 tons, the lowest level since 2020, with a decrease of as much as 25% in the southern markets.
Structural Adjustments in the Market
To counter weak demand, Indian jewelers have accelerated product structure adjustments. On one hand, the market share of 18K gold jewelry (75% purity) has jumped from 5%-7% to over 15%, with prices 20% lower than traditional 22K gold, aligning more with the needs of young consumers for fashion and value for money; on the other hand, retailers have increased sales of digital gold and gold coins, with investment demand accounting for 75% of total demand in 2024.
The World Gold Council predicts that when gold prices exceed $3,000 per ounce, India's total gold demand in 2025 may fall to 700 tons, a four-year low. However, some institutions remain optimistic. MetalsFocus believes that as consumers gradually adapt to high gold prices, coupled with abundant monsoon rains (benefiting farmers' income), demand in the fourth quarter may rebound by 5%-10% quarter-on-quarter, but it will be difficult to reverse this year's downward trend.
Impact of Indian Demand on Global Prices
The decline in India's demand for gold imports may limit the rise in global gold prices. In May 2025, Indian gold imports decreased by 13% year-on-year to 31 tons, the second consecutive monthly contraction, reflecting a continued slowdown in physical consumption. But at the same time, the rush of central banks to buy gold provides long-term support for gold prices, with global central banks' net gold purchases reaching 289 tons in the first quarter of 2025.
Analysts point out that India's gold market is torn by three forces: "high gold prices," "weak consumption," and "strong culture." Although jewelry consumption is restricted, gold's cultural attributes as a wealth storage tool remain, and the growth of investment demand (such as gold-backed ETFs) may reshape the market. In the future, the focus should be on the actual sales data of the October festival season and whether the Indian government will introduce further stimulus measures, such as increased tax incentives for gold-backed ETFs.
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