Overview

In light of record-high gold prices, the second-largest consumer of the precious metal, India’s gold imports are predicted to fall 85% from a year ago in February, hitting their lowest level in 20 years. Even during the wedding season, which is usually a peak time for gold purchases, there is a noticeable drop in demand.

Gold demand takes a hit

Given that the nation is currently experiencing the wedding season, when demand typically increases, the steep decline in February imports was out of the ordinary for the jewelry business. Gold purchases in India are largely driven by weddings, as jewelry made of bullion is a common present from family and friends and an essential component of a bride’s outfit.

Record prices for the precious metal are stifling demand, and India’s gold imports are expected to drop 85% from year-ago levels in February to their lowest levels in 20 years. India’s trade deficit might be reduced and the rupee, which is now trading close to a record low against the dollar, may be supported by fewer imports of gold.

On Monday, the price of spot gold reached a record high of $2,956.15 per troy ounce. According to the official, India’s February gold imports are expected to drop from 103 tons in February 2024 to about 15 metric tons, the lowest amount for the month in at least 20 years. India has imported 76.5 tons of gold in February on average during the last ten years.

January imports lacked demand

Just a tiny quantity of gold has been released from customs by banks and jewelers this month. It is unlikely that import numbers would improve unless prices plummet in the next two to three days. Demand for the gold brought in January was eliminated by the price spike. According to the head of a gold-importing bank’s bullion division in Mumbai, there was no use in importing more in February.

Imported gold transferred to the US

Last week, domestic prices in India hit a record high of 86,592 rupees for 10 grams. Since the Indian market was trading at a discount, at least two banks transferred imported gold that was kept in a customs-free area in India to the United States. There is no need to sell in India at a $35 per ounce discount when the U.S. market is paying almost a 1% premium.

Geopolitics affecting gold demand

Despite efforts by both countries to strengthen border security and stop the flow of fentanyl into the United States before a deadline of March 4, Trump stated on Monday that tariffs on imports from Canada and Mexico remain “on time and on schedule.” According to data released Monday by the San Francisco Fed, investors and economists anticipate that the U.S. Federal Reserve would react “strongly and systematically” to shifts in the labor market and inflation.

Further, in terms of geopolitics, Trump and French President Emmanuel Macron’s divergent approaches to Ukraine revealed a rift between the US and Europe over Trump’s request for a speedy ceasefire agreement with Russia.

Due to such uncertainties, gold remains a stable investment option which led to significant increase in the gold prices worldwide with, spot gold was barely moving, trading at $2,949.46 an ounce as of 0105 GMT, $7 below the previous session’s all-time high of $2,956.15, while U.S. gold futures were holding steady at $2,965.

Conclusion

To sum-up, the all-time high prices of gold have greatly reduced Indian gold imports, wherein a staggering 85% decline is expected in the month of February, a drop which would set a new record low in the past 20 years. Though wedding season is still in full swing and tends to result in higher demand, the relentless surge of gold prices has severely reduced buying interest amongst consumers, translating to neglected imports and an absence of demand for gold trades in the month of January. It is anticipated that the sluggish demand for gold imports will help in reducing India’s trade deficit and strengthen the currently weak Indian Rupee against the dollar. On the other hand, the persistent rise in the price of gold globally is due to gold’s strong geopolitical position and its reliability as an investment vehicle. Therefore, in an unexpected turn of events, Indian gold traders have even started exporting gold to the USA owing to the difference in gold prices.

The image added is for representation purposes only