Indian gold demand that saw a year-on-year decline during the April-June quarter may witness a recovery in the coming quarters as a host of factors would play out favouring an improvement demand, a senior official of World Gold Council said.
There are possibilities that the government may announce measures to drive economic growth and incentives for farm sector in the backdrop of deficient monsoon rains. Also, the rupee may strengthen against the dollar. These factors would be good augury for gold demand, Ajay Mitra, Managing Director, India and West Asia, WGC, said today.
“In my view the worst is over. There is going to be recovery driven by festive demand, government incentives to drive growth and strengthening of the rupee,” Mitra said.
Gold exchange traded funds (ETFs) saw redemptions right through June but there is a reversal in trend in July. “The month also saw best imports of gold since January. These are first few signs that indicate demand is likely to pick up,” he said.
He expects Indian gold demand to be around 688-700 tonnes during 2012, down 28-33 per cent from the previous year.
April-June quarter
India’s gold demand during April-June was at Rs 50,773 crore, down 20 per cent on year in value terms. In tonnage terms, gold demand stood at 181.3 tonnes, down 38 per cent on year, WGC’s report on gold demand trends for the second quarter of 2012 said.
Jewellery demand fell 10 per cent on year in value to Rs 34,950 crore and 30 per cent on year in tonnage terms to 124.8 tonnes.
But investment demand saw a sharper fall of 37 per cent in value terms at Rs 15,823 crore and 51 per cent decline in tonnage terms at 56.5 tonnes.
Sustained high prices of gold, weak macro-economic scenario leading to subdued consumer sentiment, deficiency in monsoon rains, high inflation and fewer auspicious wedding days during the year have contributed to sluggish demand for the yellow metal.
“This year there is a 34 per cent decline in the number of wedding days this year,” Mitra said.
More importantly, there is a consumer resistance at Rs 30,000 price level. Gold prices in India crossed Rs 30,000 for 10 gram and have been hovering around this level as rupee weakened against the dollar even as gold prices moved down in global markets.
The slide in gold demand is mainly due to weak demand in the southern States, he said. “South accounts for 40 per cent of the gold demand and there is stress in Kerala and Tamil Nadu,” he said.
The impact of weak monsoon would also be felt in rural demand for gold, he said.
During the second quarter, share of jewellery moved up to 71 per cent in the total basket of gold purchases compared with around 65 per cent in the year-ago period.
Investment demand, or purchases of coins, gold bars, declined after government imposed a mandatory TDS (tax deducted at source) levy on bullion purchases.
High inflation is one of the factors that has impacted investment demand, Mitra pointed out.