Global central banks plan to increase gold holding in their reserves even as Indian retail consumers may shun the yellow metal due to high prices.

As per the World Gold Council’s recent “Central Banks Gold Reserves” survey, nearly 30 per cent of world’s central banks plan to add gold to their own reserves this year. WGC collected data from a record 70 central banks from emerging markets and advance economies across the world.

“While emerging market and developing economy central banks exhibit stronger optimism about gold’s future share of global reserves (and corresponding stronger pessimism about the dollar’s future share), there is a notable shift in advanced economy central banks towards the same perspective,” the survey said.

Robust demand likely

The future of the international monetary system continues to be in flux, with central banks expressing less confidence in the US dollar’s sustained supremacy. In the face of these trends and an ever-changing investment environment, central bank gold demand is likely to remain robust, said the WGC survey.

The planned purchases are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns including higher crisis risks and rising inflation, the survey revealed. These findings come amidst a backdrop of ongoing geopolitical tensions – conflict in the Middle East, a protracted war in Ukraine and elevated US-China tensions.

On the macroeconomic front, while global inflation is starting to cool, economic recovery is proceeding at an uneven pace around the world and concerns loom regarding underlying financial vulnerabilities. In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase on record following a record high purchase of 1,082 tonnes in 2022. Central banks added 290 tonnes of gold in the March quarter of this year with India buying 19 tonnes. In April, their purchase was at about 33 tonnes.

Accordingly, “interest rate levels”, “inflation concerns”, and “geopolitical instability” continue to be the leading factors in central bankers’ reserve management decisions as they were last year, the WGC survey said.

Growth in offtake to moderate

As regards India, rating agency ICRA expects the domestic jewellery consumption growth (in value terms) to moderate to about 8 per cent in FY25 against an increase of 18 per cent in FY24.

This is amid the sharp rise in gold prices in recent months and the consequent impact on consumer sentiments of postponing non-essential purchases. Gold prices at ₹71,597 per 10 grams are currently higher by 19 per cent over FY24 average.

Sujoy Saha, Vice-President, ICRA, said the revenue growth of top 15 jewellers, which accounts for 75 per cent of the organised market, is likely to moderate to mid-to-high single digit in this fiscal against 16 per cent registered in FY24, due to subdued consumer sentiments and high gold prices.

Wedding and festive demand is likely to be relatively muted amid a relatively lower number of auspicious days in FY25, he said.

Suvankar Sen, MD & CEO, Senco Gold and Diamonds, said the gold purchase spree of the central banks across the globe is set to push prices. “We expect retail demand to be affected in volume and in value terms it may be marginal rise if prices continue to rise very fast,” he said.

Ajay Kedia, Director, Kedia Commodities, said investment demand in gold has increased in last few months as investors look to diversify on concern of high equity market valuation. With the expectations of a normal south-west monsoon, he added the rural demand for physical gold should rebound.

Consumers are expected to remain watchful of the price movements and adjust to the new price levels over two or three quarters. Given the elevated gold prices, ICRA expects the share of recycled gold in the overall supply to continue to increase and rise by 6 per cent in FY25.