Gold Council Cuts India Demand Forecast to Lowest in Seven Years

(Bloomberg) -- Elevated gold prices and India's push for more transparency on purchases and income disclosure will cut the nation's demand for bullion in 2016 to its lowest in seven years, before consumption recovers in 2017, according to the World Gold Council.

The WGC trimmed its demand estimate for a second time this year to between 650 and 750 metric tons, after lowering its forecast by 100 tons in August. Those would be the weakest figures for India since the 578.5 tons consumed in 2009. Demand last year was 858.1 tons, according to council data.

Gold prices are up about a fifth this year and that has helped keep a lid on demand in world's biggest consumer of the metal after China. Weak monsoons have subdued farm incomes in recent years, also keeping buyers away. But the biggest factor damping purchases is the government's policy on financial transparency, including a push to ensure that citizens declare all of their taxable income, according to the council, an industry-funded group that promotes gold.

“This is a one-off thing. This year has been exceptional from various points of view,” P.R. Somasundaram, managing director of the WGC in India, said by phone from Mumbai, ahead of the council's quarterly report. “Next year we can see a recovery to normal levels,” which he pegged in the range of 800 to 1,000 tons.

Diwali Boost

A drop in prices during the Diwali festival at the end of last month was good for demand, Somasundaram said, and the fourth quarter should show consumption recovering to more typical levels and even improving on the 237 tons bought in the last three months of 2015.

Imports are said to have advanced in October to the highest this year as jewelers stocked up ahead of Diwali, according to people familiar with provisional Finance Ministry data. Inbound purchases more than doubled to 96.7 tons compared with 45.3 tons a year earlier, the people said, asking not to be identified as the data isn't public. Finance Ministry spokesman D. S. Malik didn't respond to calls seeking comment.

India imported 99.6 tons in the third quarter, the smallest amount in three years, according to WGC data. Consumption fell 29 percent to 441.2 tons in the nine months to September from a year earlier, while imports dropped 49 percent to 347.3 tons, the council said.

In addition to its clampdown on undeclared income, the government has levied a 1 percent duty on gold jewelry manufacturing and made identity cards compulsory for purchases above 200,000 rupees ($2,997).

--With assistance from Shruti Srivastava To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net. To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Rebecca Keenan