India Holds World's Largest Gold Holdings Despite Government's Attempts to Reduce Domestic Demand
Key Highlights :
The World Gold Council (WGC) estimates that Indian households possess approximately 21,000 tonnes of gold, making them the world’s largest holders of the precious metal. This figure is estimated to have reached 24,000-25,000 tonnes, and the value of these gold holdings is estimated to be 40% of India’s nominal gross domestic product (GDP) in FY19.
In 2019, the predicted demand for gold in India was slightly less than 760 tonnes, the figure for 2018. In the first quarter of 2019 (January to March), India experienced a 5% increase in gold demand to 159 tonnes, driven by factors such as the strengthening of the rupee and a decline in local gold prices. On a global scale, gold demand increased by 7% during the same period.
Despite recovering from a low point of 666 tonnes in 2016 following demonetization, India’s gold demand still falls short of the 963 tonnes recorded in 2010. The upcoming July quarter is anticipated to witness an improvement in domestic gold demand due to traditional wedding season purchases and the Akshaya Tritiya festival. Additionally, the expectation of a normal monsoon this year bodes well for the rural economy and further boosts gold demand.
While jewellery is expected to be the primary driver of Indian gold demand, the consumption of bars and coins is projected to be higher in 2019 compared to the previous year. Despite the government’s attempts to reduce domestic demand for physical gold through various means such as ETFs, SGBs, gold mining funds, gold fund of funds (FoF), and digital gold, the preference for physical gold remains strong and unaffected.
The government’s gold monetization scheme (GMS) aimed at utilizing gold stored in lockers and cupboards has not gained significant traction despite offering interest rates ranging from 0.5% to 2.5% and providing exemptions from the capital gains tax, wealth tax, and income tax on value appreciation. This indicates that the Indian population still prefers to hold physical gold as a form of investment.
In conclusion, the Indian population's preference for physical gold remains strong despite the government's attempts to reduce demand for it. This is evidenced by the fact that India holds the world's largest gold holdings, and that the demand for gold in India is expected to increase in the upcoming quarters due to traditional purchases and the expectation of a normal monsoon.
