Gold Demand in India Seen Revisiting 7-Year Low on New Rules

Updated on
  • Demand in 2017 may be at lower end of forecast, council says
  • Impact of government changes seen as ‘temporary phenomenon’

Gold consumption in India, the world’s second-biggest user, is on track to revisit the seven-year low recorded in 2016 after tax and regulatory changes damped demand, according to the World Gold Council.

Demand this year is more likely to be at the lower end of the 650 metric tons to 750 tons forecast in February and close to the 666.1 tons notched up last year, P.R. Somasundaram, managing director for the London-based council in India, said in an interview, adding the headwinds may start easing next year.

Global jewelry demand fell 3 percent in the third quarter mainly because of India’s introduction of a uniform goods and services tax in July and after an anti money-laundering act was briefly imposed on the sector in August. While large, organised retailers were well equipped to cope with the transition, smaller outfits faced difficulties, the council said in a report on Thursday.

Further measures such as mandatory hallmarking to ensure purity standards and a revised anti-money laundering act could bring short term hiccups next year, but India is on track to go back to 900 tons by 2020, Somasundaram said. “You will broadly see that India is resetting itself to its old five-year average of about 850 tons.”

For the nine months to September, consumption advanced 7.6 percent to 454.5 tons, while imports surged 96 percent to 680 tons, keeping inventories elevated in local markets, the council said in the report.

This year’s uneven monsoon rainfall may hurt income in parts of the rural economy, which makes up 60 percent of India’s consumption of gold, the council said. “This could have a knock-on effect on jewelery demand in these areas over coming quarters, although the effect will be mitigated by aid measures,” it said.

Read: Gold Giant Gains to Record as India’s Tax Shift Seen as Plus

The government measures haven’t permanently dented demand and are a “very temporary phenomenon,” Somasundaram said. “You will see the demand coming back because GST would have stabilized and quite a lot of these quarterly interventions in terms of policy decisions, the trade is almost getting used to these and adapting themselves.”

Gold futures in Mumbai are up about 8 percent this year, while global prices in dollars have risen 12 percent.

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