Gold demand down 26% in Q1

Unfavourable govt policy pulls down import, with expectations of relaxation also helping defer purchases

Gold demand in India declined 26 per cent in the first quarter (Q1) of the current calendar year on deferring of purchases by consumers, amid expectation of a relaxation in the policy on import by the next government at the Centre in the coming months.

The World Gold Council (WGC) estimated import at 129 tonnes in January-March, against 268 tonnes in the corresponding quarter of 2013. The total of import in calendar year 2013 was 825 tonnes; WGC believes the figure will be as high this year.

It says India’s gold demand was 190.3 tonnes in the March quarter, compared to 257.5 tonnes in the same quarter of the previous year. The fall was largely due to a decline in investment demand, at 44.7 tonnes compared with 98 tonnes in Q1 a year before. Overall sentiment in the jewellery sector, however, remained positive. Gold demand from this sector was 145.6 tonnes during Q1, compared with 159.5 tonnes in the same period of 2013.

Somasundaram P R, managing director, WGC (India), said: “The quarter witnessed the continued impact of higher import duties and supply curbs imposed on the gold market in an effort to reduce India’s current account deficit. Policy makers and economists across the spectrum have acknowledged the risks of these types of policies.” With an estimate of 190 tonnes of demand in Q1 and the various restrictions, WGC has forecast the demand for all of 2014 at 900-1,000 tonnes. It was 950 tonnes in 2013.

Somasundaram said with the Bharatiya Janata Party’s election win and its pro-business approach, there is an expectation that short-term curbs on gold will be removed. The key, however, to a vibrant industry with huge job opportunities is a long-term policy approach which balances demand and macro economic factors. India should create a system that deals with gold as a fungible asset category, reflecting its importance in Indian culture.

On possibly unfavourable rainfall in the monsoon season due to an El Niño effect, WGC forecast a drop in rural income, resulting in a fall in gold demand from rural India.  Somasundaram said he hoped the new government’s focus would remain on the economic growth of rural India and, so, for overall demand from rural India to remain robust this year.

As part of the government restrictions on gold imports, banks were not allowed to import coins and bars. On relaxing the curbs, this segment will be the first to feel the ripple effect in demand. Also, the exchange trade fund segment is waiting to pick up, with waning interest from investors due to lack of gold availability in such holdings, said Somasundaram.