Gold import in second half set to slide

The fall would be driven by early jewellery purchases and a strong revival of agricultural activity

Gold import is estimated to dive during the second half of 2017, says Thomson Reuters GFMS. It was 500-plus tonnes in the first half, supported by a 126 per cent surge in demand during the June quarter. According to Thomson Reuters, “With imports in the first half already near the whole of 2016 volumes, it is less likely in our view that imports will cross 250 tonnes in the second half.” In other words, the drop in July-December could be as much as

50 per cent.

Even so, total import for the year would be about 50 per cent higher, at close to 760 tonnes, than the 2016 one of 510 tonnes. The fall during the second half would be driven by early jewellery purchases and a strong revival of agricultural activity, following a good monsoon last year.

The farm sector was almost out the market prior to the advent of rainfall in 2016. This year is also expected to be good for the sector and a spike in demand might be seen in the December quarter.

The GFMS survey also says, “GST (the new goods and services tax) at three per cent on bullion and five per cent on jewellery making charges is not high enough to keep customers away. However, our recent survey on the unofficial market suggests it is going to thrive more efficiently, as end-to-end it will be a cash-based business, with less traceability.”

“With imports in the first half already equalling the volumes achieved in the whole of 2016. it is less likely in our view that imports will cross 250 tonnes in the second half. But, that said, consumption demand by the end of the year is forecast to reach close to 660 tonnes, i.e, 10 per cent higher year-on-year (596.5 jewellery and retail investments put together). Import numbers also include imports for re-exporting.”

In the short term, GFMS also sees prices remaining soft, as India’s demand is likely to be lukewarm in the second half.

The survey says, “Given the introduction of GST, there is a relative hiatus in imports to that crucial market at present. This is leaving gold prices susceptible to softness, not least as it is often Indian demand that responds positively to price weakness.

While this means that the Northern Hemisphere summer is likely to see subdued prices, we expect this to be a passing phase, albeit one that might well see prices temporarily drop below $1,200 (an ounce). However, we continue to expect prices to recover later in the year, as there is both a seasonal upturn in demand in Asia and a recovery in western investment.”