(Kitco News) - The two biggest gold markets in the world continue to present contrasting demand pictures, as Indian consumers unleash pent-up demand while Chinese consumers slow their pace of purchases compared to an unprecedented start to the year.
According to initial reports, India's gold market has seen a pickup in activity after the government dropped its import tax on the precious metal to 6% from 15%.
"Anecdotal reports suggest that there has been strong buying interest from jewelry retailers as well as consumers since the duty reduction. At the recently concluded India International Jewellery Show, manufacturers noted that there has been a substantial increase in order bookings from retailers who are preparing for the festive and wedding season running through December. In some cases, these orders have reached levels not seen in several years," wrote Kavita Chacko, the World Gold Council's research head in India, in a note on Monday.
According to research from JPMorgan, Indian jewelry chain Senco Gold has seen a 25-30% rise in sales in the first half of the second quarter, compared to 10% in the first quarter.
Looking at the broader Indian market, Chacko said that the drop in the import tax could collectively increase physical gold demand by 50 tonnes in the second half of the year.
However, the Indian market continues to face some challenges. The biggest hurdle remains the sharp rise in prices. Even with the lower import tax, Chacko noted that domestic prices have risen by 10% so far this year.
"This can be attributed to the global price strength (y-t-d gains of 18%) amid strong central bank purchases, elevated geopolitical risks, and intensifying expectations of a monetary policy pivot from the US Federal Reserve," she said.
India's domestic market is a sharp contrast to the world's largest gold market in China. After an unprecedented start to the year, Chinese consumer demand has slowed significantly in the last couple of months.
What is absent from this move in #gold – in contrast to the first few months of the year – is evidence of strong buying from China. Based on feedback from the trade jewellery demand is weak in China and investment flows have slowed too. pic.twitter.com/ubM2LGhxPw
— John Reade (@JReade_WGC) August 20, 2024
According to domestic trade data, gold imports into China totaled 44.6 tonnes, down 24% from June. Imports have dropped to their lowest level in two years. At the same time, July's dismal trade data followed a 58% decline in gold imports in June.
"Record-high gold prices and a sluggish economy continue to deter Chinese retail buyers, notably in discretionary purchases such as jewelry," said commodity analysts at BMO Capital Markets.
However, not everyone is convinced that Chinese demand will remain lackluster. Last week, the People's Bank of China issued new gold import quotas to several Chinese banks; analysts have said that this could be a sign of stronger anticipated demand.
"The Chinese government's recent initiatives to stabilize the domestic economy could spur renewed interest in gold. With policies aimed at boosting consumer confidence and encouraging spending, Chinese households may increasingly turn to gold as a reliable store of value in uncertain times," said James Hyerczyk, a market analyst at FXEmpire. "China's potential re-entry into the gold market could send shockwaves through global gold prices. As the largest consumer, China's buying activity has a profound impact on international markets. A surge in demand from Chinese buyers could push prices higher, particularly if other factors, such as inflation and geopolitical tensions, continue to support gold's appeal as a safe haven."
