Gold demand dips 39% in June quarter

World Gold Council: Progress of the monsoon will be a factor in determining if investment demand for gold recovers

The demand for gold in India declined 39 per cent in the quarter ended June, owing to an unfavourable government policy and adverse economic conditions. In its report on the gold demand trend during the quarter, the World Gold Council (WGC) estimated India’s overall demand stood at 204.1 tonnes, against 337 tonnes in the corresponding quarter last year.

While demand for jewellery fell 18 per cent to 154.5 tonnes in the June quarter from 188 tonnes in the year-ago period, investment demand dived 67 per cent to 49.6 tonnes from 149 tonnes in the corresponding period last year.

China, too, saw a decline in gold demand. According to WGC, demand in China fell 52 per cent to 192.5 tonnes.

In July last year, the Centre had introduced the 80:20 policy (according to which 20 per cent of the gold imports had to be exported) and discouraged investment from small and individual consumers through savings schemes. These decisions took a toll on demand.

“The policy squeeze and other economic factors affected savings in India, resulting in lower demand of gold in the quarter,” said Somasundaram P R, managing director (India), WGC.

The council lowered its full-year demand outlook by 50 tonnes—from 950-1,000 tonnes to 850-900 tonnes. “With the impending wedding season and favourable monsoon, it is likely demand in the second half of this year will be normal. We, therefore, expect annual demand to be 850-900 tonnes this year,” Somasundaram said.

Now, the economic sentiment, too, looks favourable and buying behaviour is gradually returning to trends. Also, anxiety over inflation and other consumer-related issues has been on the decline.

“Considering these factors, gold demand in the second half is likely to remain higher than in the first. The demand, however, may see a trigger from policy decisions, including a widely expected import duty cut, likely to be announced any time soon,” said Somasundaram.

The WGC report said, “The progress of the monsoon, currently below average levels, will be an important factor in determining whether investment demand recovers to longer-term average levels towards the end of the year.”

On the demand outlook globally, Somasundaram said, “Given global equity markets are returning to the recovery path, it is expected the money earned through equities will be invested in gold. Also, central banks have increased their purchase in the second quarter of this year to 118 tonnes from 92 tonnes in the year-ago period.”