By Anil Mathews
NEW DELHI (Scrap Monster): The demand for gold in India has dropped to eight-year lows during third quarter this year, says latest report by the World Gold Council (WGC). The consumer demand for gold during Q3 ’16 totaled 194.8 tonnes. The demand has dropped by 28% when compared with the demand of 271.1 tonnes during corresponding quarter last year. This is the lowest demand level recorded during the third quarter of any year since 2008. According to WGC, the fall in demand is primarily on account of high gold prices and government restrictions on gold purchases. It must be noted that gold prices have rallied nearly 31% since the start of the current year.
The Indian gold jewellery demand dropped by 28% from 214.1t in Q3 ’15 to 154.7t in Q3 this year. The year-to-date demand for gold jewellery has declined by 30% so far in 2016. The jewellery demand remained soft mainly on account of higher volatility in gold prices and strict regulations imposed by the government on jewellery purchases. The country’s share of total jewellery demand has dropped sharply from 28% during initial three quarters in 2015 to 24% in Q1-Q3 ’16. The demand continued to remain weak among rural population, which accounts for bulk of jewellery purchases in the country.
The WGC report states that investment demand in the country declined for the third consecutive quarter in Q3 this year. The demand plunged by nearly 30% to total 40.1 tonnes. The year-to-date investment demand for bars and coins totaled 100.7 tonnes, dropping to the lowest level in 12 years. However, branded gold coins witnessed huge customer demand during the quarter. For instance, the Indian Gold Coin sales have totaled 185 kilograms since its official launch during November last year.
According to WGC, the Indian gold demand for the entire year 2016 is likely to hit seven-year lows. It downsized the country’s gold demand forecast from earlier 750-850 tonnes to 650-750 tonnes. Meantime, the world industry body forecasts recovery in demand during 2017. It predicts increased gold buying activity in rural sector. The normal to excess rains in many areas across the country is likely to result in 7-8% increase in Kharif foodgrain output during the current year. This in turn will generate additional income for the rural population, which will be diverted to gold in the coming quarters.
The government decision to demonetize the Rs 500 and Rs 1,000 currency notes is expected to boost demand for gold jewellery for a few days. Bullion dealers are of the view that the government decision could have impact on pure gold demand, as people will now have more trust on jewellery than currency notes. The government move has been welcomed by the All India Gems and Jewellery Trade Federation (GJF).
Meantime, the surprise announcement by the Indian government coupled with the unexpected victory of Donald Trump in US presidential elections have taken gold prices to new highs. The prices surged higher by Rs 900 per ten grams to Rs 31,750 per ten grams Wednesday. This was the highest closing level since November 2013, when the gold prices in domestic bullion market had hit Rs 31,820 per ten grams.