Surge in Gold Smuggling in India Amid Global Price Drop and High Import Duties
India, the world’s second-largest gold market, is experiencing a significant shift in gold imports due to an increase in import duty from 6% to 15%. This hike has made official imports more costly, leading to a surge in unofficial supplies. Concurrently, record gold prices are exerting pressure on consumer demand.
According to a report from the World Gold Council, gold smuggling is estimated to have risen to around 50 tonnes in the September quarter, a stark increase from just three tonnes during the same period last year. This trend underscores the unintended consequences of higher import costs on the market.
Gold Demand Trends
Gold demand saw a sequential recovery of 24%, reaching 162 tonnes in the previous quarter, primarily driven by seasonal jewellery purchases. However, this figure remains 29% below the level recorded a year earlier, as elevated prices continue to deter many buyers. Spending patterns reveal a different narrative; in the first nine months of the year, expenditure on gold rose by 3% year-on-year and 38% sequentially, indicating that consumers are spending more, albeit on smaller quantities.
Jewellery demand contributed significantly to the quarterly recovery, increasing by 33% sequentially to 100 tonnes. Seasonal buying and a slight easing in prices towards the end of the quarter bolstered purchases. Despite this improvement, jewellery volumes were still 20% lower than a year ago, with demand for the first nine months down 18%, reflecting the challenges consumers face in affording gold at current prices.
Investment demand also showed signs of stabilizing after last year’s strong buying. Demand for bars and coins increased by 9% sequentially to 55 tonnes, although it was 40% lower year-on-year, partly due to a strong comparison base. Gold exchange-traded funds (ETFs) saw increased interest, with demand rising to 5.3 tonnes in Q3 from 3.6 tonnes in the previous quarter.
The increase in import duty has altered the cost dynamics of gold supply in India. With the duty now at 15%, bringing gold into the country through official channels has become more expensive. This trend has historically incentivized the use of unofficial supply routes, according to an ET report.
