India's gold demand rises 13% in 2013

But China's surpasses due to liberalisation of gold policy

India’s gold demand (including official and unofficial imports and scrap recovery) shot up 13 per cent in 2013, despite imports restrictions. The respite government felt through lower imports was negated by a big jump in smuggling.

Gold miners’ body World Gold Council (WGC) estimated India's demand at 975 tonnes in 2013 compared to 864 tonnes a year ago. The higher demand was attributed to the surge in jewellery and investment demand which grew 11 per cent and 16 per cent, respectively, to 613 tonnes (552 tonnes a year ago) and 362 tonnes (312.2 tonnes), respectively.

After a drawdown in the third quarter, the sentiment slightly improved in the fourth quarter of 2013. Demand in the quarter was 219 tonnes compared to 262 tonnes a year ago.

Jewellery demand during the quarter saw a decline of two per cent to 151 tonnes while investment demand saw a decline of 38 per cent to 68 tonnes compared to 109 tonnes a year ago.

“The overall gold demand saw a 13 per cent growth for the full year, with a sharp decline in consumer demand in the second half due to the supply curbs. But, equally, it was due to the households having met a large part of their annual requirements in the first half, making use of the price drop in April,” said Somasundaram P R, managing director, India, WGC.

After a steep decline in the third quarter at 91 tonnes, imports saw a modest rise in the fourth quarter to 114 tonnes, accumulating to 557 tonnes in the first nine months of the financial year. A year ago, imports were 630 tonnes. For 2013, imports were 825 tonnes.

“The latter half saw intense grey market activity. But its impact will be more visible in 2014, if the curbs continue. Gold has a special status socially, culturally and economically in India.”

The WGC advocated banks be allowed purchase of gold, both coins/bars and jewellery, from consumers to expand gold market, which, in real terms, was an asset for classes with little disposable income.

China surpasses India demand
China surpassed India in gold demand for the first time in 2013 due to liberalisation of gold trading norms by the local governments. Chinese government had shown interest in diversifying a part of their foreign exchange reserves to gold from dollar.

As a result, China’s demand was 1,120 tonnes compared to India’s 975 tonnes in 2013. If the curbs continue, China will surpass India this year, too. For 2014, China’s demand is estimated at 1,000-1,100 tonnes against 900- India's 1,000 tonnes.

Prices to stay high
Experts said $1,200 an ounce was the cut-off. If the price fell below that, a supply-demand mismatch would start. Therefore, the cost of production is understood to be $1,200 an ounce. But, this may differ from one to another, depending upon acquisition of mines, geographies, etc. Currently, the price is around $1320 an ounce. Prices may remain elevated due to no new exploration of mines, he said.