After hitting a seven-year low in 2016, Indian gold demand recovered in the January-March quarter with a 15% jump in volume terms from a year earlier — albeit aided by a favourable base — while demand for the precious metal dropped 18% globally, showed the latest data from the World Gold Council (WGC). The growth in Indian gold demand value is even more impressive — 18% in rupee and 19% in dollar terms. WGC managing director (India) Somasundaram PR told FE that the rupee’s appreciation significantly protected Indian households from the hike in gold prices in dollar terms, giving them an additional reason to meet the latent gold demand that was created in 2016 following demonetisation and other regulatory measures against unaccounted wealth. Wedding demand that accounts for 40-50% of jewellery and bars and coins demand was strong in Q1.
“Opportunistic purchasing by investors and an increase in restocking means the gold market is likely to maintain a healthy uptake for the first half of 2017. The forecast for a normal monsoon could also play a promising role in stabilising consumer demand the second half of 2017,” the WGC said.
Still, the council maintains its India demand forecast of 650-750 tonnes for 2017, compared with 674 tonnes a year earlier. The WGC is keeping in mind the short-term challenges arising from the PAN card registration, restrictions on cash transactions to buy gold and the transition to the goods and services tax (GST) regime that will kick in from July.
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Though the introduction of GST is widely welcomed by organised players — as it seeks to mandate transparency and enhance consumer value — there are concerns about the level of tax, Somasundaram said. For the gold industry to emerge as the harbinger of the transformation to transparency, which seems to be the focus of all recent reforms, GST coupled with import duty needs to be below the current level of 12%, the WGC said.
Global gold demand touched 1,034 tonnes in the January-March quarter from a year earlier, a decline of 18% compared with the massive demand in the first quarter in 2016, the WGC said. Inflows into exchange-traded funds touched 109 tonnes, which, although good, was nonetheless just a fraction of last year’s near-record inflows. Slower central bank demand also aided the overall weakness. Alistair Hewitt, head of market intelligence at the WGC, said: “Demand is down year-on-year, but that is largely because Q1 last year was exceptionally high. Although we did not see the record-breaking surges in ETF inflows experienced in Q1 2016, we have seen good inflows nonetheless this quarter, with strong interest from European investors ahead of the Dutch and French elections.”