India's gold demand down 5.68% in March quarter

India’s gold consumption declined by a marginal 5.68 per cent in the quarter ended March this year, primarily due to expectations of a cut in import duty. In terms of consumption, India continued to lag China, with a wide gap of 27 per cent.

Data compiled by global consultancy GFMS showed India’s overall gold consumption stood at 179.5 tonnes in the quarter, against 190.3 tonnes in the year-ago period. While jewellery consumption rose a marginal two per cent to 148.5 tonnes, the investment segment reported a steep 30 per cent decline at 31 tonnes.

“2015 began with a slowdown in consumption in the first two months in anticipation of a cut in customs duty during the annual Budget. Consumers stayed on the sidelines, despite average prices being seven per cent and 10 per cent lower year-on-year in January and February, respectively. It was only in March that prices fell to their lowest in four months and jewellery demand increased, negating earlier losses. Investment demand fell sharply, as lower price expectations and tighter liquidity conditions kept physical trading interest subdued,” said a GFMS report.

In India, gold consumption has had a rollercoaster ride since import restrictions began in earnest in mid-2013, with volatile import levels, increases in local premiums and an increase in smuggling through last year.

While many Indians find it cheaper to purchase from the United Arab Emirates, lack of premium in India has seen the carry trade decline significantly. Jewellers in Dubai say such purchases tend to be planned ones, such as those for weddings, adding these are driving the Indian market.

For the March quarter, India’s gold import jumped a staggering 87.2 per cent, amid expectations of strong demand in the festive and wedding seasons. The GFMS report estimates gold import in the quarter at 216.2 tonnes, against 115.5 tonnes in the year-ago period.

Though Akshaya Tritiya (April 21) was after the quarter ended, sales leading up to the occasion boosted imports in March.

GFMS estimates southern India posted growth of 20-22 per cent in jewellery sales, compared to the year-ago period. Sales in other regions increased up to 15 per cent. The investment segment’s performance was below-average and notable sales were confined to a few states alone. Bullion traders and retailers were left with excess stock.

GFMS says the fact that the 80:20 import rule has been done away with resulted in lower smuggling and higher official imports. Though this has reduced local premium, the import tax of 10 per cent still leads to smuggling.

“We expect Indian consumption to recover from the second quarter and foresee another impressive year of total gold sales. Though heavy rain in the first quarter has been negative for gold demand, we continue to expect a solid year gold purchases,” the agency says.

Rhona O’Connell, head of the GFMS team, said, “Gold might see some pressure in the short term, but any approach towards $1,100 will be constrained by a growing demand-side response. This is compounded by strong technical support around the $1,130 and $1,100 levels. Further, the timing of the first rate increase in the US will remove a degree of uncertainty from the markets and is likely to trigger the start of a secular but gentle bull run in gold prices, as investors implement fresh strategies, aided by improving gold market fundamentals.”