India, the world’s second-largest consumer of gold, saw a decline in gold demand in the first quarter of 2023. According to the World Gold Council (WGC), the demand for gold in India plummeted to 112.5 tonnes in Q1 2023, down from 135.5 tonnes during the same quarter in 2022. The WGC attributes this decline to volatile gold prices and fewer auspicious buying days. In particular, gold jewellery demand fell to 78 tonnes from 94.2 tonnes in Q1 2022. Investment demand was at 34.4 tonnes, compared with 41.3 tonnes in Q1 2022.
Somasundaram PR, the regional CEO of India for the World Gold Council, stated that “a sharp rise in gold prices and volatility combined with fewer auspicious days to trigger consumption, has led to many households deferring buying, perhaps in anticipation of a downward price correction.” Looking forward, the council expects gold demand to remain soft in the second and third quarters but anticipates a rebound in the fourth quarter.
While gold demand is falling in India, China’s quarterly jewellery demand of 198 tonnes was the highest since Q1 2015. Additionally, US buyers purchased 32 tonnes of gold bars and coins in Q1, marking its highest level in any quarter since 2010. Despite these bright spots, gold bar and coin purchases fell in Europe, and Indian jewellery demand fell to a three-year low.
Investment demand for gold is expected to increase throughout the year, thanks to a surge in investment demand and central bank buying. The World Gold Council reports that central banks bought 228 tonnes of gold in Q1 2022, more than any other Q1 period on data dating back to 2000. Around half of gold demand comes from jewelers, with investors and states responsible for most of the rest.
Gold prices have soared past $2,000/ounce in the face of economic uncertainty, Federal Reserve interest rate uncertainty, and concerns over the US banking sector. However, Krishan Gopaul, the WGC analyst, warned that stockpiling by investors could make gold more expensive, reducing demand in India where customers are often deterred by high prices. Higher gold prices have prompted some people to sell their old coins and jewelry, resulting in a 25% increase in scrap supplies in Q1 compared with the previous year, the WGC added.
In conclusion, India’s gold demand fell in Q1 2023 due to high and volatile gold prices. However, the demand for gold is expected to rebound in the fourth quarter. Despite the decline in India, China’s demand for gold jewelry and US buyers purchasing gold bars and coins have provided bright spots. The rise in investment demand, central bank buying, and soaring gold prices are expected to continue throughout the year, but investors should be cautious of stockpiling that could lead to reduced demand, particularly in India.
