Gold jewellery demand likely to rebound after note ban

Demand bounces back but uncertainty over GST rate for jewellery casts a shadow for future

India’s gold jewellery demand is likely to increase 17 per cent in 2017 on a bounce-back after demonetisation.

India Ratings, in its latest study, forecasts India’s gold jewellery demand at 600 tonnes in 2017, which is equivalent to the last five years’ average. The World Gold Council (WGC) estimated India’s gold jewellery demand at 514 tonnes in 2016.

“Jewellery demand remains robust, given India’s demographics and wedding-related purchases. Demand is likely to rebound to above a five-year average of 600 tonnes in 2017,” said Harsha Sodhani, an analyst with India Ratings.

India’s gold demand plunged 21 per cent in 2016 to 675.5 tonnes from 857.2 tonnes in the previous year. Investment demand contributed 25 per cent, or 161.5 tonnes, of the total.

“The US economy has shown resilience in recent months, causing the dollar to strengthen, but gold has not lost its shine completely. Geopolitical tension in the Ukraine, Syria, and the South China Sea has kep alive the safe-haven appeal of gold,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullions.

Experts said investment demand for gold might be affected by an interest rate hike by the US Federal Reserve. US Fed Chair Janet Yellen has hinted at an interest rate revision in March. Mehul Choksi, managing director, Gitanjali Gems, said gold demand would bounce back due to investors’ interest in US gilts and the appreciation of the dollar against major currencies.

Assuming investment demand at 160 tonnes, almost the same as last year, India’s overall gold demand could touch 750 tonnes in 2017.

India’s gold jewellery demand rose 3.5 per cent to 182.2 tonnes in October-December from 176 tonnes in the same quarter a year ago. Investment gold demand also rose 2.8 per cent to 61.8 per cent in October-December from 60.1 tonnes in the same period of 2015.

India Ratings said a higher tax rate in the goods and services tax could dampen demand in the non-wedding segment that accounts for 35-45 per cent of purchases.