India's gold demand rises 71% in April-June quarter

MUMBAI-INDIA (Aug 16)  Spurred by an emphatic growth in investment (coins and bars) demand despite frequent controlling measures by the government, India’s overall consumer demand of the yellow metals jumped a staggering 71% in the second quarter of the current calendar year, a World Gold Council statement said on Thursday.

For the quarter ended June 30, 2013, total consumer demand of gold in India was recorded at 310 tonnes as against 181.1 tonnes in the corresponding quarter of the previous year.

While investment demand of the yellow metal shot up by 116% to 122 tonnes in Q2, 2013, jewellery demand stood at 188 tonnes in the quarter under consideration. In the corresponding quarter of the previous year, however, gold demand stood at 56.5 tonnes and 124.6 tonnes for investment and jewellery respectively.

“The second quarter in India, where bar and coin demand reached a record high, clearly needs to be considered in the context of domestic developments, given government efforts to curb gold imports and their contribution to the current account deficit. The introduction of restrictions on payment terms for gold imports in May and an increase in import duties in early June created uncertainty in the market but had a limited impact on end-user demand, which was met by stocks that had been built up to healthy levels following the April price drop,” said Marcus Grubb, managing director (Investment), World Gold Council.

The government of India raised import duty on gold fifth time on Tuesday to control the burgeoning the current account deficit of which gold is considered as the second largest contributor after crude oil. Also, the Reserve Bank of India (RBI) tightened gold import norms without affecting the interest of actual local jewellery manufacturers and exporters. The government mandated at least 20% supply of the imported quantity of gold to exporters, a step considered as enough to control its import into India.

Today, import duty on gold works out to 10% as against less than 1% in January last year.

Nevertheless, imports tailed off in June with demand slowing sharply as the market entered its seasonal quiet period and as the government extended the restrictions on gold imports as well as further raising import duties to 8%.

In more recent weeks, the change in emphasis from restricting payment terms to linking import quotas to exports is likely to create further confusion and exaggerate the normal Q3 lull in Indian demand ahead of the Q4 festival and wedding season.

However, it is interesting to note that price premiums in India have recently spiked higher again, suggesting that demand is healthy. A good monsoon season so far also bodes well for demand later in the year, with the assumption that the market will by then have had time to digest and acclimatise to the recent restrictions imposed by the Reserve Bank of India (RBI), Grubb added.

Rajeev Sheth, managing director of Tara Jewels Ltd, feels that the government measures showed a temporary impact on consumer demand in India. Anyway, gold jewellery demand remains lower during the April-August seasons due to the absence of buying reasons (wedding, festival seasons etc.) But, consumers’ love for gold cannot be compromised at any cost. Hence, the increase in import duty will not yield any result during the peak demand season which is just 15-day away.”