The world’s two largest gold markets, India and China, are exhibiting contrasting trends in consumer demand. While Indian consumers are rushing to buy gold following a significant reduction in import taxes, Chinese buyers are pulling back after a robust start to the year.
India’s gold market has witnessed a resurgence in activity after the government slashed the import tax on gold from 15% to 6%. This move has ignited strong buying interest among both jewelry retailers and consumers. According to Kavita Chacko, the World Gold Council’s research head in India, there has been a notable increase in order bookings during the India International Jewellery Show, with manufacturers reporting demand levels not seen in years as retailers prepare for the upcoming festive and wedding seasons.
JPMorgan’s research highlights that Senco Gold, a prominent Indian jewelry chain, experienced a 25-30% increase in sales during the first half of the second quarter, up from a 10% rise in the first quarter. Chacko projects that the reduction in import tax could boost India’s physical gold demand by an additional 50 tonnes in the second half of the year.
However, challenges persist in the Indian market, particularly due to a sharp rise in domestic gold prices, which have climbed 10% this year. Chacko attributes this increase to the global rise in gold prices, driven by strong central bank purchases, geopolitical risks, and growing expectations of a policy shift by the U.S. Federal Reserve.
In contrast, China’s gold market is experiencing a significant slowdown. After a strong start to the year, Chinese consumer demand has weakened, with gold imports falling to their lowest level in two years. In July, gold imports into China totaled 44.6 tonnes, a 24% drop from June, following a 58% decline the previous month. Analysts at BMO Capital Markets attribute this decline to record-high gold prices and a sluggish economy, which have deterred Chinese retail buyers from discretionary purchases, particularly jewelry.
Despite the current downturn, some analysts believe that Chinese demand for gold may rebound. The People’s Bank of China recently issued new gold import quotas to several banks, signaling potential stronger demand. James Hyerczyk, a market analyst at FXEmpire, suggests that the Chinese government’s efforts to stabilize the domestic economy could rekindle interest in gold. He notes that policies aimed at boosting consumer confidence might lead Chinese households to view gold as a reliable store of value in uncertain times. If China’s gold demand resurges, it could significantly impact global gold prices, especially if other factors such as inflation and geopolitical tensions continue to support gold’s appeal as a safe-haven asset.
