Gold demand down 26% in Q1, jewellery purchases shrink 9%

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Gold demand in India shrank 26 per cent in the first quarter of calendar 2014 against an exceptionally good quarter in the previous year, but is expected to pick up in the second half of the year as the industry expects the new government to ease curbs on bullion imports.

The World Gold Council, a market development organisation for the gold industry, said India’s gold demand stood at 190.3 tonnes in the March quarter against 257.5 tonnes in the year-ago quarter. In value terms, the total demand of Rs 48,853 crore was 33 per cent lower than Rs 73,183.6 crore reported for the same quarter of calendar 2013.

WGC said the demand was in line with the usual trend seen in the first quarters of previous years. In a highly-regulated environment, investment demand declined 54 per cent.

“The exceptionally good demand in Q1 of 2013 was due to a sharp drop in prices. The March quarter demand was more or less in line with the trend seen in the first quarters and is above the average Q1 demand of the past five years. In 2012, Q1 gold demand stood at 202 tonnes,” said P R Somasundaram, managing director of WGC, India.

Jewellery demand fell by nine per cent to 145.6 tonnes from 159.5 tonnes a year ago, while in value terms, it slumped 18 per cent.

Investment demand declined 54 per cent to 44.7 tonnes from 98 tonnes in Q1 of 2013 and was attributed to restrictions on imports.

In value terms, the drop was 59 per cent. The quantum of recycled gold was almost stable at 21.3 tonnes.

The industry estimates gold imports by India, the world’s No. 2 bullion consumer after China, to double from current level if the import restrictions are eased. This can help global prices that slumped 28 per cent last year — the first drop in 13 years — partly due to India’s curbs.

“Demand has been down in the past three quarters,” said Somasundaram. Though the average international gold prices were down 21 per cent, in India prices were hovering between Rs 29,500 and Rs 30,000 per 10 gm due to the spot premiums and increased duty. The average price during Q1 of 2013 stood at Rs 28,420.

India slapped a record high duty of 10 per cent on overseas purchases of gold and imposed other import curbs in 2013 when trade deficit ballooned to an alarming level.

The gold body has projected demand to pick up in the coming quarters and estimated it to be 900 to 1,000 tonnes.

“The overall economy is expected to get better and the new government is likely to relax the restrictions on gold imports. We are looking forward to the economic survey, which will indicate the fiscal deficit number, the priorities of the government and also policies towards gold trade,” Somasundaram said.

Globally, gold demand during the January-March period was marginally down to 1,074 tonnes from 1,077 tonnes a year ago. Outflows from gold ETFs slowed to just 0.2 tonne against 177 tonnes in the first quarter of 2013. Investment demand was down two per cent while jewellery demand shrank by 3 per cent.

Central banks continued to be strong buyers, purchasing 122 tonnes during the quarter. On Tuesday, central banks in Europe agreed to continue with the central bank gold agreement (CBGA). The fourth such agreement by the European Central Bank and other central banks in the region asserted their commitment to continue the coordination of gold transactions in order to avoid market disturbances.

“The agreement, first entered in 1999, proposed a limit to the total quantum of gold that could be sold by the central banks so that the sale does not disturb the market. The third such agreement was to expire in September and there were speculations that the banks may not enter a new agreement. The new decision is significant for the bullion market,” Somasundaram said.

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