India’s gold demand jumped 39% in the quarter through September to 225.1 tonne from a year before, far outperforming a 2% drop globally, as jewellery demand hit its loftiest since the first quarter of 2011, according to World Gold Council (WGC) data released on Thursday. In value term, demand rose 31% from a year before to R56,219.30 crore in the last quarter.
Although gold demand recovered from a 39% slide in the June quarter, aided by consumption in the build-up to the festival season and a favourable base, it’s in sync with a long-term average, WGC managing director (India) Somasundaram PR told FE.
“The September quarter of last year was an aberration (gold demand was just 161.6 tonne), as the import duty on gold was raised to as high as 10% and the 80:20 rule was brought in by the Reserve Bank Of India to choke supplies in a bid to contain the current account deficit (CAD).
This year, the situation changed, as buyers were more or less convinced about a stability in government policies and went back to their normal buying pattern during the September quarter,” he said.
According to Somasundaram, despite the latest uptick, the country’s gold demand will probably hover around 900 tonne, down from 975 tonne last year.
Gold imports tumbled in the July-September period last year after the RBI in July imposed the 80:20 rule, mandating that 20% of imported gold be kept aside for re-export. Many exporters slowed down purchases, assuming they couldn’t ship out more than 20% of the imported gold.
The government in September clarified that those importing gold must ensure at least 20% of it goes for export, allaying the confusion and leading to a modest pick-up in imports.
Still, the stiff 80:20 rule, imposed after an exceptional surge in imports in the first half of 2013, prevented a sharp rise in purchases in the second half.
He said the government needs to tweak the 80:20 rule. “Instead of forcing jewellers to export, regulatory direction should be changed and incentives offered to bring about structural changes so that exports improve automatically and trade balance is restored in a sustained manner.
This will also boost domestic manufacturing and add jobs. That’s why both the authorities and industry should focus more on raising exports instead of choking raw material supplies.”
He added that it is essential to find ways of monetising household stocks, which stand at a record 22,000 tonne, to contain the CAD and also support economic growth.
Global gold demand declines 2% After a 16% drop in the June quarter, global gold demand got a leg-up from rising Indian consumption and narrowed the fall to just 2% to 929 tonne in the September quarter from a year earlier. Jewellery demand was down 4%, technology demand shed 5%, although investment demand inched up by 6%, the data showed.
“With recycling at a seven-year low and mine supply looking increasingly likely to be constrained in the future the outlook for physical gold demand remains strong,” WGC managing director of investment strategy Marcus Grubb said.