Gold demand jumps 10% in Q2, but the festive season may not be that rosy

India’s gold demand jumped by 10 per cent in the July–September quarter due to a dip in gold prices in the beginning of the period and forecast of a normal monsoon rainfall, which raised hopes of a bumper Kharif harvest this year.

Data compiled by the apex global body, the World Gold Council (WGC) showed India’s gold demand at 183.2 tonnes for the third quarter of the current calendar year compared to 165.8 tonnes for the corresponding period last year.

Both jewellery and investment demand spurred as consumers rushed to book their pie to take advantage of the price fall which hit the lowest of 2018 in the beginning of July. Unfortunately, the sharp spike in rupee depreciation made gold costlier in India despite a fall in global prices. Thus, consumers are awaiting gold price to witness similar decline before getting into buying mode again. Depreciating rupee, therefore, pushed consumer sentiment back in terms of fresh buying.

“A dip in its price in the early part of the quarter spurred India’s gold demand during the July–September quarter. However, the rupee’s depreciation impacted the local price and demand eased towards the latter half of the quarter. A combination of the factors such as lack of buying occasions, the disruption caused due to floods in the key gold market and an intervening inauspicious period affected demand,” said Somasundaram PR, managing director, WGC, while announcing the gold demand trend for the July – September quarter of 2018 in Mumbai on Thursday.

While gold demand from jewellery segment jumped 10 per cent to 148.8 tonnes for July–September 2018 quarter from 134.8 tonnes for the same quarter previous year, investment demand spurred by 11 per cent to 34.4 tonnes for the quarter under consideration from 31 tonnes in the corresponding quarter last year.

For the full nine-month period between January and September, India’s gold demand recorded a marginal decline of 1 per cent to 523.9 tonnes compared to 529.2 tonnes for the same period last year.

“Equity market volatility created conditions to diversify into gold though inflation, the traditional drive of gold demand, remained under control despite higher oil prices, offsetting this trend. Notwithstanding the positive sentiment underpinning this growth, it should be seen in the context of a low base following the introduction of the goods and services tax (GST) in the third quarter of 2017,” said Somasundaram.

Looking ahead, the last quarter is normally a vibrant period for gold-related purchases due to the festival and wedding seasons. However, the seasonal spike in demand could be moderate this Dhanteras–Diwali due to factors like a lack of liquidity, rising gold prices and impending elections in some key states impacting trade logistics. Hence, the festival of Diwali is likely to see a cautious consumer sentiment this year, unlike sparkling previous years.

“We estimate full year Indian gold demand to be at the lower end of the range between 700 and 800 tonnes,” Somasundaram said.

During the last calendar year i.e. 2017, India’s gold demand stood at 772 tonnes. Today, gold is selling at a discount of $5.5 an oz which means at Rs 100-110 per 10 grams in local currency.