India's gold demand rises 71% in April-June quarter

Government measures to curb its demand yield no positive result

Spurred by an emphatic growth in investment (coins and bars) demand, despite frequent controlling measures by the government, India’s overall consumer demand for the yellow metal jumped 71 per cent in the June quarter, a World Gold Council (WGC) report said on Thursday.

Total consumer demand for gold in India during the quarter stood at 310 tonnes against 181.1 tonnes in the corresponding quarter last year. While investment demand shot up 116 per cent to 122 tonnes, jewellery demand stood at 188 tonnes in the quarter. In the year-ago period gold demand stood at 56.5 tonnes and 124.6 tonnes for investment and jewellery, respectively.

“The second quarter in India, where bar and coin demand reached a record high, clearly needs to be considered in the context of domestic developments, given government efforts to curb gold imports and their contribution to the current account deficit (CAD). The introduction of restrictions on payment terms for gold imports in May and an increase in import duties in early June created uncertainty in the market, but had a limited impact on end-user demand, which was met by stocks that had been built up to healthy levels following the April price drop,” said Marcus Grubb, managing director (investment), WGC.

The government raised import duty on gold for the fifth time on Tuesday to control the burgeoning CAD, of which gold is considered the second largest contributor after crude oil. Also, the Reserve Bank of India (RBI) tightened gold import norms without affecting the interest of actual local jewellery manufacturers and exporters.

Now, import duty on gold works out to 10 per cent against less than one per cent in January last year. Imports tailed off in June with demand slowing sharply as the market entered its seasonal quiet period.

In recent weeks, the change in emphasis from restricting payment terms to linking import quotas to exports is likely to create further confusion and exaggerate the normal September quarter lull in Indian demand ahead of the festival and wedding season. However, it is interesting to note that price premiums in India have recently spiked higher again, suggesting demand is healthy. A good monsoon season so far also bodes well for demand later in the year, with the assumption that the market will by then have had time to digest and acclimatise to the recent restrictions imposed by RBI, Grubb added.

Rajeev Sheth, managing director of Tara Jewels Ltd, feels the government measures showed a temporary impact on consumer demand in India.