Kolkata: India, the world’s second-largest gold market, is witnessing a sharp shift in supply dynamics, as an increase in import duty to 15% from 6% has triggered a surge in unofficial inflows even as record-high prices weigh on consumer demand.Smuggling is estimated to have soared to around 50 tonnes in the September quarter from just three tonnes a year ago, highlighting the unintended consequences of higher import costs, according to a World Gold Council report.While gold demand rebounded 24% sequentially to 162 tonnes last quarter, led by seasonal jewellery buying, it remained 29% lower year-on-year as elevated prices kept many potential buyers away. Spending, however, remained resilient, rising 3% YoY and 38% sequentially in the first nine months of the year, indicating consumers are continuing to spend more despite buying less gold.Jewellery demand led the recovery, rising 33% sequentially to 100 tonnes, supported by seasonal purchases and some softening in prices towards the end of the quarter. However, volumes were still down 20% from a year earlier last quarter and 18% lower during the first nine months, reflecting the growing affordability challenge for consumers.Investment demand also showed signs of stabilisation after the strong buying last year. Bar and coin demand rose 9% sequentially to 55 tonnes but was down 40% year-on-year against a particularly strong base. Exchange-traded fund (ETF) demand, meanwhile, improved to 5.3 tonnes in Q3 from 3.6 tonnes in the previous quarter, indicating renewed investor interest.The higher import duty has significantly altered the economics of gold supply. The current 15% duty has raised the cost of official imports and, consistent with historical trends, widened the incentive for unofficial channels.Looking ahead, seasonal buying during the festive and wedding periods is expected to support overall demand in the December quarter. However, jewellery volumes may get impacted by elevated prices, while investment demand will largely depend on price momentum and expectations of further gains. The market is therefore likely to see a divergence between value and volume growth, with consumers spending more even as the quantity of gold they purchase remains under pressure.
