Central Banks to Continue Adding Gold Reserves
Despite the sharp rise in gold prices, central banks are set to continue adding gold to their reserves in FY25. The demand for gold from central banks is expected to remain strong, with more than eight in ten central bank reserve managers planning to increase their gold holdings in the next 12 months. This confidence in gold as a safe-haven asset persists even after two years of record central bank purchases and all-time high gold prices in 2024.
Reserve managers believe that holding gold can help mitigate risks and prepare for global political and economic uncertainties. While 71% of reserve managers see gold’s historical significance as a reason to hold it, 88% consider its long-term value, 82% its performance during crises, and 76% its role as a portfolio diversifier.
Impact on Jewellery Consumption
On the other hand, jewellery consumption in FY25 is expected to decline in volume terms. According to ICRA, after experiencing modest volume growth in the past two years, jewellery consumption is projected to contract in FY2025. The value of jewellery consumption is also expected to moderate compared to the sharp expansion seen in FY2024.
The decline in jewellery consumption is attributed to the significant increase in gold prices in recent months, leading consumers to postpone non-essential purchases. Consumers are likely to monitor price movements and adjust to the new price levels over the next few quarters.
Future Outlook and Factors Influencing Gold Prices
Current gold prices are 19% higher than the FY2024 average, influenced by various factors such as the global macro-economic environment, geopolitical tensions, inflation, and currency fluctuations. Sujoy Saha, Vice President and Sector Head at ICRA, predicts relatively subdued wedding and festive demand in FY2025 due to fewer auspicious days.
Additional Insight:
It’s interesting to note how central banks continue to see gold as a valuable asset despite its price fluctuations. Their confidence in gold’s ability to protect against uncertainties highlights the enduring appeal of this precious metal in times of economic instability. Additionally, the cautious consumer behavior in response to rising gold prices underscores the importance of price sensitivity and consumer sentiment in the jewellery market.
