India's Gold Demand Drops Amid High Prices and Increased Import Levies

India's gold demand has dropped by 6% in Q2 of this year compared to the same period last year, according to a report from the World Gold Council. Despite the decline in physical demand, the total value of purchases reached a record high of Rs 1.98 lakh crore due to the steep increase in gold prices. The value of purchases has surpassed previous records, with a 50% increase over the same period last year.

The main reason for the decline in demand is the high domestic gold prices, which have made it expensive for consumers to buy jewelry. Additionally, the cost of purchasing gold has increased due to higher import levies and the 3% Goods and Services Tax (GST), further reducing retail demand.

India's net gold imports dropped by 23% year-on-year to 98.1 tonnes during the quarter, which is the lowest level since September 2020. The World Gold Council has warned that a rise in gold smuggling may occur due to the increased import fee on gold, which has widened the price difference between legitimate and unofficial channels.

Investment interest in gold remains strong despite the decline in demand for jewelry, as customers continue to perceive gold as a safe-haven asset amidst market turbulence and geopolitical concerns. The report suggests that if prices stabilize, demand may increase in the second half of the year, encouraging consumers who postponed purchases to buy again.