Indians love gold, so much so that, India accounts for c. 25% of the world demand for gold in 2013. Demand arises in the form of Jewellery as well as other forms like bars and coins.
A shirt made of 22 carat gold to become the next fashion statement? Unlikely. But it certainly shows the allure of the yellow metals for Indians.
It is considered auspicious in India to gift gold for important events like weddings. Many communities have considered gold Jewellery a safe form of investment for generations, and this certainly is driving demand.
Last year, the Modi government imposed stringent hikes on the import duties on gold in India from 1% at the start of 2012 to 10%, and also other restrictions like mandatory re-export of 20% of imports.
These measures, while helping to control India’s growing fiscal deficit, also had the inevitable impact of increase in prices locally.
Did this dampen India’s appetite for Jewellery? According to the World Gold Council data, the overall consumption rose by 100 tonnes from the 975 tonnes consumed in 2013. The demand for jewellery remained relatively stable to the demand for coins and bars.
This is just limited amount of data, but clearly demonstrates the resilience of demand for gold jewellery over other forms of gold. In fact, the demand for jewellery has returned to the 5 year average in Q1 2014 already. The reasons could be multiple, but based on generally accepted demand sources, weddings are one of the most resilient sources of demand.
Indian import restrictions are expected to be relaxed, and possibly completely removed by Diwali 2014. This is certainly going to increase demand further, as people are once again going to flock to buying gold. Longer term however, specifically for bridal jewellery, there might be a scenario where gold jewellery forms a smaller proportion of the spending and a larger proportion is spent on other investment forms. Diamond jewellery could be a very serious candidate that gets the benefits of the diversification. Reasons could include the aspirational middle class that is looking to buy jewellery to flaunt their wealth.
From an older report by Bain, the demand trends in India are increasing and expected to continue increasing. Added to this “flaunting” trend, the acceptability of diamonds as an investment form are likely to shift demand further away from gold.
Indians are not going to stop buying gold jewellery for weddings anytime soon, but the data, trends, price volatility of gold, and government controls might just encourage people to consider buying diamond jewellery for Indian weddings. We’re not holding our breath though.
Sources of Data and Charts: World Gold Council, Bain Consulting Reports, Datta Phuge Picture from Huffington Post