Gold Outlook For 2025: Will India's Gold Demand Continue?

India is one of the world’s largest gold markets. Several factors including the cultural significance of gold to India’s traditional festivities and the steady economic growth over the years contribute to the consistent demand for gold in the country. As we near the end of 2024 and look forward to 2025, it’s worth pondering whether India will continue to play a leading role in the evolving gold market or its demand may dwindle.

The country saw some major changes vis-a-vis gold trade in its Budget in 2024. The 2024-25 Union Budget announced earlier this year had cut the gold import duty by more than half. Total customs duty on gold was reduced from 15 per cent to 6 per cent and that on gold doré was cut to 5.35 per cent from 14.35 per cent.

Typically, gold’s performance, both domestically and globally, hinges on a mix of macroeconomic factors such as central bank policies of different nations, geopolitical uncertainties and a collective investor sentiment that varies from Geography to Geography.

Gold’s Performance In 2024

According to a recent report by the World Gold Council (WGC), gold is on track for its best year in over a decade with prices rising 28 per cent year-to-date by November 2024. This rally was driven by strong central bank purchases, high investor demand, and positive macroeconomic of lower yields and a weaker U.S. dollar.

In addition to this, geopolitical tensions and financial market volatility have also put gold in the spotlight again as a ‘safe-haven asset’. India has been a major contributor to the gold rally benefiting largely from reduced import duties in the latter half of the year and resilient economic growth.

Gold Outlook For 2025: India And Abroad

The gold demand in India is inherently intertwined not only with its economic growth but also cultural affinity its citizens/investors have for the metal. The Indian economy, projected to grow over 6.6 per cent in 2015, is expected to provide a solid base for heightened consumer demand. Additionally, Gold ETFs and sovereign gold bonds are also coming forth as desirable avenues for gold investments among Indians. They complement the traditional forms of gold consumption such as jewelry and coins.

A previous WGC report noted that, for the first time since April 2022, gold ETFs attracted $3.7 billion in inflows in July 2024, with India leading the charts in the Asian region.

Unlike some of its Asian counterparts, India is relatively insulated from the adverse effects of potential U.S. trade policies due to its smaller trade deficit, the WGC report notes. Such resilience could bolster domestic demand for gold in the country.

However, it is important to note that gold is not immune to competition from other investment avenues like equities and real estate, as well as the potential impact of global monetary policy shifts on gold prices.

What drives gold demand globally?

According to the WGC report, gold’s global outlook in 2025 could be shaped by the following factors:

- The US Federal Reserve is expected to cut rates by 100 basis points by the end of 2025 while European central banks may also follow suit. Historically, it has been noted that gold tends to perform well in the initial stages of a rate-cutting cycle, rising by an average of 6 per cent in the first six months. However, any long-term pauses or reversals in monetary policy may spring some challenges.

- Global geopolitical tensions, such as the conflicts in the Middle East and concerns over European sovereign debt, may drive risk-averse investors towards the ‘safe-haven asset’ Gold. Additionally, the uncertainties around the U.S. trade policies and their impact on gold supply chains may also influence investment flows.

- China, which is also the world’s largest gold market alongside India, will play a crucial role in global gold performance. It’s economic performance and government measures will be the driving factors. The report notes that Chinese consumer demand has been subdued in recent years but any uptick could provide a significant boost to global demand.

- Central banks, the net buyers of gold for nearly 15 years, are expected to keep their purchases robust in 2025, WGC states. With gold’s well-established role as a store of value and a hedge against credit risk, central banks are likely to continue diversifying their reserves. The World Gold Council’s analysis also projects that central banks' demand could surpass the long-term average of 500 tonnes. This in turn could support gold prices.

“However, Gold’s final price performance will depend on the interaction of gold’s four key drivers: economic expansion, risk, opportunity cost, and momentum,” the report notes.