Domestic gold prices have jumped around 22% so far in 2019, mirroring a rise in global prices, a weak rupee and a hike in the import duty to 12.5% in July from 10% earlier.
India’s gold demand will hit a three-year low of 700-750 tonne in 2019, the World Gold Council (WGC) said on Tuesday, trimming its earlier forecast after demand crashed 32% year-on-year to 123.9 tonne in the September quarter, ahead of the festive season.
Global demand, however, rose 3% in the September quarter, as record investment in gold-backed exchange traded funds more than offset a drop in purchases of jewellery, bars and coins, reflecting gold’s appeal as a safe-haven asset amid an economic slowdown.
Somasundaram PR, the managing director (India) of the WGC, told FE that the crash was caused mainly by elevated prices of the precious metal and persisting weak sentiment in rural India (where crops were damaged by heavy monsoon downpours and which makes up for roughly two-thirds of the country’s demand). Demand in the December quarter could be lower than last year’s 236.5 tonne, but the decline is unlikely to be as high as in the three months through September. In 2018, the country’s gold demand was to the tune of 760.4 tonne. However, going forward, 2020 is expected to be better than 2019, as a lot of pent-up demand could spill over and as the health of the rural economy improves, said Somasundaram.
Domestic gold prices have jumped around 22% so far in 2019, mirroring a rise in global prices, a weak rupee and a hike in the import duty to 12.5% in July from 10% earlier. In September, local gold futures and spot prices hit record highs of Rs 39,885 and Rs 39,011, respectively, per 10 gram, although they have since eased a tad.
While demand for jewellery dropped close to 32% y-o-y to 101.6 tonne in the September quarter, that for investment (bars and coins) plunged 35% to 22.3 tonne. In value term, however, the fall is less pronounced in the last quarter — 17% in jewellery and 15% in bars and coins — due to the rise in metal prices.
Gold import volumes in the September quarter plunged 66% y-o-y to just 80.5 tonne. The drop in import was sharper than expected, as jewellers turned to inventory as well as recycling, the WGC said. Gold recycling could rise as much as 38% y-o-y in 2019 to 120 tonne.
In the first nine months of 2019, the country’s cumulative gold demand plunged to 496.11 tonne from 523.9 tonne a year earlier. Similarly, the cumulative gold import dropped to 502.9 tonne in the January-September period from 587.3 tonne a year before.
Somasundaram said the sharp rise in the gold price and deep discount in the cash bullion market impacted both trade and the consumer outlook in the September quarter. The gold price rally failed to lose momentum during the quarter, breaching the Rs 35,000/10 gm level in mid-July and continued to climb to Rs 38,795/10 gm by the end of August. “This Rs 5,000/10 gm leap in two months caught consumers completely off-guard, prompting many to delay buying and the domestic gold price reached an all-time historic high of Rs 39,011 in the first week of September,” he said.
“The following softening of prices in the final few weeks of the quarter — due to the decrease in the international gold price and a strengthening rupee — actually led to expectations of a further drop and hence, did not aid demand,” he added
Global demand rises
Global gold demand rose to 1,107.9 tonne in the July-September period, up 3% from a year before. “The continued surge into ETFs more than compensated for weaker demand elsewhere,” said Alistair Hewitt, the WGC’s head of market intelligence.
Holdings of gold-backed ETFs jumped by 258.2 tonne during the September quarter to touch a record high, the WGC said. Overall gold demand in the first three quarters of the 2019 calendar year rose to 3,317.5 tonne, the most for any January-to-September period since 2016, it said. Hewitt forecast full-year demand in China at 850-950 tonne, lower than the WGC’s predictions of 900-1,000 tonne three months ago.