Disclosure of PAN details is driving Indians away from gold

India’s gold demand declined by 28% during the July – September quarter due to high prices and change in government policies including requirement of permanent account number (PAN) card and introduction of excise duty.

The global body the World Gold Council (WGC) estimated India’s gold demand at 194.8 tons for the July – September quarter of 2016 compared to 271.1 tons for the corresponding quarter last year. The quarterly demand for the third quarter, however, is the highest for the current calendar year as good monsoon coupled with sustained economic growth helped revive rural demand, the key for gold purchases, in India.

Gold price increased by a sharp 22 per cent to an average 28,733.9 per 10g for the third quarter of calendar 2016 from an average 23,476.1 per 10g in the same period last year. In dollar term, too, average gold price jumped by 19 per cent to $1334.8 an oz for July – September 2016 compared to $1124.3 an oz for the same quarter last year.

“While an elevated price level has been an obvious factor for the decline in gold demand volume, other issues appear to have had an impact on demand – such as the trade strike following the introduction of excise duty, the regulation of PAN card for purchases over 200,000 and the subdued sentiment of gold buying when the income disclosure scheme was running and the usual discounts to bullion prices in the unorganised segments that caused further disruption to the official trade channel.

Although regulatory decisions by the government was taken earlier, its impact was felt on gold demand during July – September quarter,” said Somasundaram PR, Managing Director, India, WGC. For the entire calendar year 2016, however, the WGC revised its gold demand forecasts earlier from between 750-850 tons lower to 650-750 tons, the lowest in seven years. The WGC said that the jewellery demand was lower by 28 per cent at 154.7 tons for the July – September quarter 2016 from 241.1 tons for the same quarter previous year, investment demand also plunged by 30 per cent to 40.1 tons for the third quarter of the current calendar year from 57 tons in the corresponding quarter last year.

During the first nine month of calendar 2016, India’s total gold demand stood at 441.2 tons, 28.9 per cent lower than 621.2 tons reported in the same comparable period last year. The ongoing quarter, however, is expected to outperform the remaining three quarters of the current calendar year, though. “Good monsoons and a drop in the gold price ahead of Diwali augur well for strong seasonal demand in Q4 that will likely restore the demand trajectory to normal levels. Further, as tax compliance moves under the goods and services tax (GST) framework, with a reasonable duty and tax on gold, we can expect growth in organized trade activity. As global factors are supportive of gold, consumer acceptance of this price levels will further sustain demand,” said Somasundaram said.

Meanwhile, global gold demand reported 10 per cent decline at 993 in the third quarter of 2016, WGC said in its third quarter report released on Tuesday. Net inflows into exchange trade products (ETPs) helped drive a sharp increase in investment demand, but this was not enough to offset falls in other areas, notably jewellery and purchases by central banks. Talking about the impact of GST on gold sentiment in India, Somasundaram said that more people would move towards organized way of sales. He further said that WGC had once upon a time recommended 5-6 per cent of applicable duty on gold to continue smooth going of business.

The impact of US election on gold price movement would be temporary. “More than US election, there are other factors including the revision in US Fed rate, EU (European Union) economy and political sentiment in France and Germany would impact gold prices. But, general perception is that gold is a good asset for long term,” he added. Gold supply through smuggling in India is estimated to increase 12 per cent this year from an estimated 100 – 120 tons in 2015.

Courtesy: Business Standard