Gold demand at 7 year low: Why are Indians not buying gold

India’s gold demand dropped sharply during the March 2016 quarter. The overall demand was 116.5 tonnes, down 39.2 percent from 191.7 tonnes during the March 2015 quarter, according to World Gold Council (WGC) data.

The fall in the jewellery segment was 41 percent in the quarter to 88.4 tonnes from 150.8 tonnes during the March 2015 quarter and hit a seven-year low. “Q1 2016 saw Indian jewellery demand hit a seven-year low of 88.4t, a 41 per cent year-on-year decline. This is 44 per cent below the five-year quarterly average for India of 156.7t and indicates the extent of the troubles faced by that market during the quarter,” the WGC report said.

Two-thirds of India’s gold demand comes from villages, where jewellery is seen as a mode of investment and wealth creation. Rural demand is slack after the first back-to-back drought in nearly three decades squeezed farmers’ earnings. In the March quarter, India’s total gold demand was expected at 60-70 tonnes, the lowest since the first quarter of 2009, when local purchases totalled 41 tonnes, said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS.

Indian jewellery sales have fallen since the start of the year, hit by higher gold prices and delayed purchase decisions by consumers, who had hoped the national budget would cut an import duty of 10 percent. The factors for the fall are fairly well-known. “The sharp rise in the local gold price through a number of key levels was discouraging in itself,” WGC said in its report. “But the final blow came in the budget released on 29 February. In it the government proposed not only an increase in both custom and excise duties on doré (from 8 per cent to 8.75 per cent and from 9 per cent to 9.5 per cent respectively), but also — crucially — a 1 per cent tax to be levied on jewellery manufacturing,” it added.

Global demand rises

The WGC report said that demand for the yellow metal for the March 2016 quarter at a global level was up 21 percent at 1,290 tonnes, driven mainly by “huge inflows into exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape.”

However, the demand in the jewellery segment dropped 115 tonnes, or 19 per cent, to 481.9 tonnes, year-on-year, mainly due to India and China. “Soaring gold prices, market disruption in India and supply-constraints in China combined to impede gold jewellery demand,” said the WGC report. Jewellery gold demand fell 17 per cent to 179.4 tonnes in China during the March 2016 quarter from 216.3 tonnes in the year-ago period. Globally, China and India are the top two consumers of gold.

June quarter forecast upbeat

The world gold body said demand is likely to pick up in the June quarter. “The outlook for India is more positive: consumers are waiting for their opportunity to re-enter the market. The steep local price discount has already been largely eradicated. The industry expects the pent-up demand that accumulated during Q1 to be released in the coming weeks as the market adjusts to the new tax structure and buying for the wedding season gathers momentum,” it said.

India FY16 gold imports

India imported 950 tonnes of gold in 2015-16, 9.5 per cent down from 1,050 tonnes in the previous financial year. In value terms, gold imports stood at $31.7 billion, down from $34.3 billion in 2014-15.

Courtesy: Hindustan Times/IB Times