According to a report released by the World Gold Council (WGC) the demand in Q1 1999 was 192.4 tonnes while the demand in Q1 1998 was 252.4 tonnes.

The report says that the factors responsible for the fall in demand were a slowdown in economic growth, sharp increase in basic consumer commodities prices and the effect of the rise in the domestic gold price following the depreciation of rupee in early 1998.

According to the report the official gold imports into India in Q1 1999 also registered a drop of 74 tonnes in comparison to imports in the same period last year. The official import figures for Q1 1999 and Q1 1998 were 127 tonnes and 201 tonnes respectively.

WGC financial institutions manager Derrick Machdo commenting on the current scenario said that the removal of import restrictions at the end of 1997 saw goldentering the country through official channels as smuggling became less lucrative. Official imported gold figures in the early part of 1998 hence witnessed a tremendous surge. Hence, the decline in this year's first quarter must be viewed in this context.

The report expects an increase in demand in the remaining period of the year from the effect of a good winter harvest in early 1999, which will boost rural incomes. However, the report expects that a substantial part of the demand will be met through informal imports from Dubai, due to the effect of the recent duty hike in January. The increase in import duty from Rs 250 to Rs 400 per 10 grams has raised tha premium over international prices from 6.8 per cent in December to around 10 per cent by March.

Globally, gold demand in the first quarter of 1999 was 62 per cent above the opening three months of last year, continuing the recovery from a poor start to 1998. First quarter demand in the countries monitored by WGC was 788 tonnes. It is a fraction lowerthan the record set in Q1 1997 and a just 2 per cent below the all-time record for any three month period set during the fourth quarter of last year.

The strong performance in Q1 was a result of a gain of 75 per cent in worldwide jewellery demand and a 20 per cent increase in investment over the same period of last year.

Good growth in demand in the USA, China, Japan, South Korea and South East Asia more than compensated for lower demand in India, Middle East and Europe. These were the main findings of the latest issue of WGC's quarterly survey gold demand trends.