India's gold demand down 29% vs Q1 2011: WGC

Investment demand down 46%, jewellery demand down 19%

India's total gold demand was down by 29% at 207.6 tonne in the first quarter of 2012 compared to the corresponding quarter in 2011.

Gold demand in the country declined by 13% in value terms and was at $11,284 million compared to $12,952 in the corresponding quarter last year.

India, considered to be one of the strongest gold markets in the world, lost the battle to China, whose gold demand in the quarter grew by 9%, totalled at 255.2 tonne.

The World Gold Council in its last previous quarter gold demand review report had suggested that China may surpass India in gold consumption.

Jewellery demand in India was down by 19% at 152.0 tonne compared to Q1 2011, while India's investment demand fell by 46% to 55.6 tonne.

Jewellery demand in India witnessed a fall of 15 in value terms to $8,262 million vs $8,361 million in the same quater a year ago.

Rising gold price in the international market and the weakness in the Indian rupee was attributed to the fall in gold demand for the country.

Gold prices have been rising continuously since the onset of the Eurozone crisis, and with the debt woes only deepening, interntional prices have been rising and consolidated at $1,690.57 an ounce in the quarter, up 22% from the same period last year.

India's jewellery demand was mainly pulled down by legal and regulatory reforms brought about by the government to narrow its current account deficit.

The customs duty on standard gold was hiked to 4%, also widening the net to double the duty on non-standard gold and gold jewellery to 10%.

An additional 0.3% excise duty was also imposed on branded as well as unbranded gold jewellery, with jewellers being asked to collect tax at source on all gold purchases above Rs 2,00,00 in the Union Budget presented in March.

The rise in excise duty had led to a three-week long country-wide strike by jewellers in most of the leading gold markets, accumulating a loss of about Rs 28 crore in the three-week period.

The finance minister, Pranab Mukherjee, later rolled back the excise duty on gold jewellery in May which saw price as a factor of rising demand go beyond Rs 31,000 per 10 gm of pure gold.

India witnessed a sharp fall in the Indian currency owing to current account deficit and fiscal deficit woes, which had also hiked gold prices in the local markets in the three months ending March. The Indian unit closed at an all-time low of 54.60 a dollar.

A weak rupee makes import of dollar-denominated commodities more expensive.

India's investment demand was down 46% in Q1 2012 compared to a rise of 5% in volume terms and 38% in value terms from year ago figures, the rise accelerated by investment in ETF's, coins and bars.

In value terms, India's investment in gold saw a decline of 34% to $3,022 million vs $4,591, in Q! 2011.

The World Gold Council in February had said, "The pre-eminent markets for investment demand in 2011 were India, China and Europe.

However, after the roll back in excise duty in May, the World Gold Council expects Indian gold demand to normalise backed by a pick up in bullion purchases and jewellery demand.

But fewer gold buying festivals in the Hindu calender for the rest of the year will limit the rise in gold demand from the country, the report said.