Gold demand in India down 18% in Q3; revival hinges on Budget measures

This quarter was crucial because of a fall in demand in the Diwali days in the year-ago equivalent period. However, that failed to boost numbers because of high prices, weak consumer sentiment

Gold demand in India in the December quarter dropped 18 per cent over the same period in the previous year to an eight-year low of 194.3 tonnes, said the World Gold Council (WGC) in its 2019 Gold Demand Trend Report, released on Thursday.

This quarter was crucial because of a fall in demand in the Diwali days in the year-ago equivalent period. However, that failed to boost numbers because of high prices, weak consumer sentiment, and rural distress.

India’s demand in 2019 was down 9 per cent at 690.4 tonnes.

India’s net import of gold in 2019 was down 14 per cent to 646.8 tonnes, but in the December quarter it was lower by 18 per cent at 138.5 tonnes. The council is hopeful of revival in India’s demand in 2020.

Somasundaram PR, India managing director, WGC, said India’s gold demand in 2020 would likely be 700-800 tonnes.

He, however, said in the past 10 years India’s average gold demand had been 843 tonnes and “the government measures aimed at bringing transparency in bullion trading are likely to keep demand below that”.

GFMS, another agency tracking gold demand trends globally, said unofficial gold had changed the demand dynamics in India.

The agency, which also released its second half 2019 gold demand report, said: “We estimate retail demand (jewellery + investment) decreased by 17 per cent to 167 tonnes compared to 201 tonnes a year ago. However, the official market suffered a 25 per cent drop in demand. This was due to the availability of gold from unofficial sources. Anecdotal evidence shows that gold was available at a 2.5 per cent discount in the unofficial market. In rural and semi-urban areas, jewellery manufactured out of unofficial gold saw good demand.”
India and China, the world’s two biggest gold consumers, accounted for an 80 per cent drop in demand in the fourth quarter of calendar 2019 on the back of rising yellow metal prices and soft economic conditions, according to the WGC.

China’s fourth-quarter jewellery demand was 10 per cent lower on a year-on-year (y-o-y) basis at 159.7 tonnes, while the full-year 2019 demand slipped 7 per cent to 637.3 tonnes.

The WGC estimates fourth-quarter demand for gold at 1,045.2 tonnes, a drop of 19 per cent y-o-y.

The two main segments contributing to this were jewellery demand, which fell 10 per cent y-o-y to 584.5 tonnes to reach its lowest level since 2011 and physical bar demand, both of which reacted to the elevated gold price.

On an annual basis (2019), gold demand dropped 1 per cent y-o-y to 4,355.7 tonnes with demand for bar and coins, jewellery and technology, denting sentiment most.

On the demand outlook for 2020, GFMS said in the first half of 2020, the outlook was cautious following persistent high price and monsoon progress.

“Demand will remain at a moderately stable or slightly lower level than the average we have witnessed in the last five years,” it said. Interestingly, consumers will not have any respite on gold prices. GFMS estimates prices rising further.

It said that “demand from key Asian markets will likely to remain weak this year, ongoing central bank purchases and renewed investor interest will lend support for higher gold prices. We therefore expect gold to average $1,558/oz in 2020, with a possibility to test and move beyond $1,700/oz later in the year”. In 2019, the gold price averaged $1,392.6 per ounce.

In last July, the finance minister had increased import duty on gold to 12.5 per cent from 10 per cent, which resulted in higher smuggling in India.

In a media interaction on the WGC report, Somasundaram had stated that “around 115-120 tonnes of gold were smuggled into the country in 2019, up from 90-95 tonnes a year earlier”.

He prescribed cuts in import duty to bring that to a reasonable level, without which “no amount of reform is going to work”.

The government early this month had mandated compulsory hall-making of gold jewellery from January next year and issued gold delivery norms for the metal refined in India.