Gold demand declines 7.6% in Q1 on weak rupee

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New Delhi | Published: August 3, 2018 1:14:28 AM

Gold demand in India, the second-largest consumer, dropped almost 7.6% in the April-June period to 187.2 tonne, causing global demand to fall 4% during the quarter, the World Gold Council (WGC) said on Thursday.

An unfavourable base (thanks to strong purchases ahead of the July 2017 rollout of the goods and services tax) weighed on demand growth further, despite robust sales by the organised trade on Akshaya Tritiya this year. (Representational photo)

Gold demand in India, the second-largest consumer, dropped almost 7.6% in the April-June period to 187.2 tonne, causing global demand to fall 4% during the quarter, the World Gold Council (WGC) said on Thursday.

WGC managing director (India) Somasundaram PR told FE that a depreciation of the rupee against the dollar, which drove up domestic prices of the precious metal by 8% in the June quarter despite a 5.5% fall internationally, and slow purchases during the inauspicious ‘adhik maas’ that falls once in three years, dented domestic demand.

An unfavourable base (thanks to strong purchases ahead of the July 2017 rollout of the goods and services tax) weighed on demand growth further, despite robust sales by the organised trade on Akshaya Tritiya this year, he added.

Between April and June 2017, gold demand touched as much as 202 tonne, against 121 tonne in the year before.

Sequentially, though, the fall has narrowed from 12% in the March quarter.

Demand in the first half of 2018 dropped 6% to 338.7 tonne, the WGC said.

The WGC has retained its 2018 Indian gold demand forecast at 700-800 tonne, against 760 tonne in 2017. Demand is expected to rise in the second half of this calendar year from 389 tonne in the corresponding period last year.

In value term, however, gold demand fell just 0.1% to Rs 52,692 crore during the June quarter, thanks to the price rise.

All signs — expectation of higher economic growth, policy focus on doubling farm income, ease of doing business under the GST regime, rural push in the Budget — suggest a good run ahead for the precious metal, he added.

Various measures announced in the Budget 2018-19, such as the development of a comprehensive gold policy and creation of a gold exchange, are positive for long-term gold demand, he has added.
Jewellery demand during the April-June quarter declined 8.1% to 147.9 tonne, while consumption for investment was down 5.5% to 39.3 tonnes. In value terms, jewellery demand eased only 1% to Rs 41,631 crore, while investment demand rose around 2% to Rs 11,061 crore.

Fall in India hits  global demand

Gold demand dropped 4.3% globally in the June quarter to 964.3 tonne, extending the previous quarter’s fall, even though supplies rose 3% in the last quarter to 1,120 tonne, supported by increased mine production and recycling growth. Of total supplies, mine production in the April-June period saw a rise of 3% to 836tonne, a record for this quarter, as projects in Russia, Indonesia and Canada continued to ramp up.
Gold recycling also grew, as currency weakness in India, Turkey and Iran boosted local gold prices and encouraged consumers to lock in profits from their holdings.

Global jewellery demand dropped 2% to 510 tonnes, thanks mainly to a drop in India, and investment demand fell 9% to 281 tonnes. Central bank demand fell 7% to 89 tonnes in the June quarter.

Interestingly, the Reserve Bank of India had added 2.5 tonne to its reserves in March to 560.3 tonne (which got reflected in this report), the first such addition since 2009.

Alistair Hewitt, head of market intelligence at the WGC, said: “Weaker economic prospects and tumbling currencies off the back of heightened tensions with the US boosted Chinese and Iranian gold demand, while US investors shrugged off any geopolitical concerns. Demand from tech companies continued to grow, with H1 (2018) demand reaching a three-year high, while economic growth boosted jewellery demand in the US with Q2 (April-June) demand hitting a ten-year high.”

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