As gold prices touched their highest levels following geopolitical tensions and concerns around economic slowdown, the demand for the precious metal in India fell nearly one-third in the quarter ended September 30, 2019. Releasing the data for gold demand in the last quarter, World Gold Council on Tuesday said that India’s gold demand may fall to its lowest level in three years in 2019.
According to the data released by WGC, India’s gold demand for the September quarter stood at 123.9 tonnes, a 32 per cent decline in demand over the corresponding quarter of last year. Somasundaram PR, MD of WGC’s Indian operations, said gold demand in 2019 could drop 8 per cent from a year ago to around 700 tonnes, the lowest since 2016.
“Along with higher prices, gold demand is getting affected by weak rural sentiment,” said Somasundaram.
While India is a big consumer of gold in the form of jewellery, data shows that Indian jewellery demand declined by almost one-third to 101.6 tonnes.
“Jewellery demand suffered as consumer confidence fell further over concerns around the slowing economy. Several indicators – such as lower sales volumes reported by large fast-moving consumer goods (FMCG) companies and domestic car/two-wheeler sales – pointed towards a slowdown in both urban and rural demand. Weak sentiment due to a liquidity crunch, excessive monsoon rains in some states, and the absence of any festivals, also influenced demand in the quarter,” said WGC in its statement.
Fall will arrest flight of capital
A sharp decline in India’s demand for gold, following the rise in prices, may come as a breather for the economy that imports much more than it exports. Over the last eight years, the net import of gold and precious stones amounted to about $245 billion. Many feel that a decline in gold imports will arrest flight of capital, narrow the current account deficit and strengthen the domestic currency.
Since January 1, 2019 price of pure gold in Delhi has jumped 21.5 per cent. However, as India is the second largest market for the precious metal, a sharp decline in its consumption of the precious metal could result into a softening in the gold prices.
While high gold prices have dented the demand, WGC said that the demand also been impacted by a 2.5 per cent rise in custom duty on gold from 10 per cent to 12.5 per cent. In the Budget announcement in July 2019, the finance minister had announced a hike in customs duty on gold import. The council said that this higher duty hit sentiment amongst both the gold trade and consumers, and fresh jewellery purchases suffered as a result.
The sharp decline in India’s gold demand came in sharp contrast to the global demand for gold that witnessed a notable rise.
The worldwide demand for gold grew from 964.3 tonnes in Q3 last year to 1,107.9 tonnes in the quarter ended September 2019. WGC said that a surge in ETF inflows led to a rise in global demand. The holding sin gold-backed ETFs grew by 258.2 tonnes to hit an all time high of 2,855.3 tonnes during the quarter.
On the other hand Central banks added 156.2 tonnes to their reserves in Q3 and this was 38 per cent lower than that added in the Q3 of 2018. Jewellery demand was also down 16 per cent to 460.9 tonnes in Q3.
On the supply side, gold supply rose 4 per cent in Q3 to 1,222.3 tonnes and the rise was driven by a 10 per cent increase in recycling as the ongoing price rally continued to encourage selling back by consumers.