Indian Gold glitters despite global fall: Demand up by 37% in April-June; here’s why

By: | Updated: August 4, 2017 3:56 AM

Fears of a high GST rate on gold spurred consumers and traders to advance their purchases ahead of the GST roll-out.

According to data, the domestic demand of gold touched 167.4 tonne in the June quarter, against 122.1 tonne a year earlier.

Indian gold demand jumped 37% in volume term in the April-June quarter from a year earlier despite a 10% fall globally, thanks mainly to a favourable base, showed the World Gold Council (WGC). Fears of a high goods and services tax (GST) rate on gold also spurred consumers and traders to advance their purchases ahead of the GST roll-out, supporting demand during the June quarter. Domestic demand touched 167.4 tonne in the June quarter, against 122.1 tonne a year earlier, showed the data. Given that demand had risen 15% in the January-March quarter, the latest data signal a recovery after consumption hit a seven-year trough in 2016. However, despite the good growth rate, the June quarter demand remained lower than the five-year average of 202 tonne (for the same quarter). The sharp pace of the jump in the June quarter was greatly aided by the conducive base (Demand in the April-June quarter of 2016 had plunged following a strike by jewellers against the imposition of excise duty). The growth in domestic demand value during the June quarter also remains robust—37% in dollar and 32% in rupee terms. WGC managing director (India) Somasundaram PR told FE despite the latest jump, the council maintains its India demand forecast of 650-750 tonne for 2017, compared with 674 tonne a year earlier.

Growth will remain range-bound even with good monsoons, as consumers and trade adapt to the GST and the compliance regime, he said. However, in a slightly more optimistic tone than in the March quarter, the WGC said, the higher end of the 2017 demand range seems more likely now. Somasundaram said demand in the second half of the current calendar year will exceed 439 tonne witnessed a year earlier. However, it may still be lower than the five-year average (for the second half of a calendar year) of 465 tonne.

“Though underlying concerns about GST and other transparency measures (including the PAN card registration and restrictions on cash transactions to buy gold), predictably, positive sentiment returned with continued remonetisation and an expectation of good monsoons,” Somasundaram said. This was evident in the sales momentum during Akshaya Tritiya supported by a relatively higher number of auspicious wedding days during the June quarter, he added. Global demand drops 10% Global gold demand dropped 10% to 953 tonne in the June quarter. With this, demand declined 14% in the first half of 2017 from a year earlier.

“After record levels of inflows into exchange-traded funds (ETFs) in H1 2016, a significant slowdown in the sector was the predominant factor behind the fall in overall demand so far this year,” the WGC said. Total global investment demand fell 34% in the June quarter to 297 tonne, the WGC said. However, global jewellry demand grew 8% to 481 tonne, while total consumer demand rose by 9% to 722 tonne and central bank demand climbed 20% to 94 tonne. Total supply was also down 8% to 1,066 tonne, from 1,160 tonne in the same period last year. Gold recycling declined 18% to 280 tonne.

Alistair Hewitt, head of market intelligence at the WGC, said: “There are a few things to watch out for in the rest of the year. Inflation data out of the US looks soft and markets have pushed out their expectations for a rate rise. The monsoon is looking good in India and, providing the market adapts to the new GST, we may see solid demand around Diwali. And as the next generation of smart phones gets rolled out we may see good support for technology demand.”

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