Indian ‘nyaras’ pan for gold, a resource that the country has in plentiful supply. Given the domestic demand for the precious metal, FDI opportunities abound. Credit: Narinder Nanu/AFP via Getty Images.

The World Gold Council (WGC) has predicted that India’s gold demand will fall to the lowest level in three years as a result of high domestic prices.

In 2023, Indian consumers are expected to purchase between 589.6 tonnes (t) and 680.3t of gold. This is a fall of 10% from a year ago, in the country that is the world’s second-largest gold consumer.

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Somasundaram PR, managing director of the WGC’s India operations, stated: “We remain cautious about gold demand as it faces uncertainties due to elevated local prices and slowdown in discretionary spending.”

However, Somasundaram added that there is hope for an upturn in gold demand before the year is over. “The success of the monsoon season could bolster sentiment ahead of Diwali season and throw positive surprises,” he said.

The buying of gold bullions from the Indian central bank also slowed this month, with the number down 5% from May’s peak. This has mirrored the actions of central banks in countries such as Kazakhstan, all of which are predicting an end to the US Federal Reserve’s easing of monetary policy and a subsequent rise in gold prices.

While it was the world’s second-largest gold consumer between 2016 and 2020, 86% of India’s gold is imported. Now though, with the onus on central banks to sell reserves, rising gold prices mean that India may finally capitalise on the gold reserves it has but has thus far failed to exploit.

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Globally, quarterly gold demand is at the lowest level since Q4 of 2020, while the LBMA gold price is higher than it was at that time.

The rise in gold prices has also meant a rise in scrap gold supplies. The higher price of gold has prompted many in India to sell jewellery and coins, leading to a 61% increase in scrap in the past quarter compared with the same quarter of the previous year. The 37.6t total was the highest in three years.