Gold demand up 13%, despite penal duty

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Finance minister P Chidambaram’s 10 per cent penal duty to curb gold imports failed to kill citizens’ appetite for the yellow metal with demand rising 13 per cent in calendar 2013 to reach 975 tonnes. However, India was displaced to the second slot after China in the global consumption ranking for gold. Together, both the countries consumed half the world’s gold supplies last year.

The World Gold Council’s gold demand trend released on Tuesday estimated domestic demand for 2013 at 975 tonnes against 864 tonnes in 2012. Jewellery demand grew 11 per cent to 612.7 tonnes and investment demand was up by 16 per cent to 362 tonnes against 2012.

WGC usually relies on import data to gauge demand in import-dependent markets like India. But for 2013, the council looked at different yardsticks to assess demand.

“This time the grey market has played a huge role in supplying gold. Recycling was relatively higher in the second half and destocking by the trade too has happened to make up for lesser imports,” said P R Somasundaram, WGC’s managing director for India.

WGC has estimated that the grey market would have fed at least 200 tonnes of gold demand last year, while 100 tonnes would have been recycled.

However, it did not rule out the chances of smuggled gold entering the market as recycled gold.

Bachhraj Bamalwa, past chairman of the all-India gem and jewellery federation, felt that even up to 300 tonnes could have been smuggled in last year. “There are no concrete numbers on the smuggled quantity, as this is a clandestine activity,” he said.

WGC’s Somasundaram said, “Demand in the second half was lower due to the effect of the supply curbs introduced in that period, but, equally, it was due to households having met a large part of their annual gold requirements in the first half, using the price drop in April as a buying opportunity. The latter half of last year has seen intense grey market activity, but its impact will be more visible and significant in 2014, if the import curbs continue.”

In the December quarter, demand was down by 16 per cent at 218.7 tonnes; jewellery demand was down by 2 per cent at 150.7 tonnes and investment demand fell by 38 per cent at 68 tonnes.

WGC estimates the demand to remain between 900 tonnes and 1,000 tonnes in 2014 as well. “However, we will revisit the demand estimates in the first quarter taking into account several factors, including prices, relaxation of import curbs and economic stability and affordability,” said Somasundaram.

With 1,066 tonnes, China’s consumption surpassed India’s in 2013. China broke India’s previous record of 1,007 tonnes — the highest annual demand by a single country. China is already the world’s top producer of gold, mining 437 tonnes annually.

India and China together consumed 54 per cent of the world’s total demand of 3,756 tonnes. With a total gold ETF outflow of 881 tonnes, the demand was, however, down by 15 per cent in 2013.

Nevertheless, demand in Turkey was up 60 per cent, Thailand 73 per cent and the US up 18 per cent. Global jewellery demand was up 6 per cent, while bar and coin demand fell 6 per cent.


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