Rising Gold Prices Keep India’s Jewellery Buyers At Bay

Indian consumers postponed jewellery purchases this quarter as they waited for local gold prices to stabilise.

The demand for gold jewellery fell nearly 12 percent to 87.7 tonnes for the quarter ended March compared with the same period last year, the World Gold Council said in a statement. That's the second weakest quarterly performance in the last decade.

The decline came as local gold prices increased by 4.5-5 percent during the quarter as the rupee depreciated 2.5 percent against the dollar and global prices rose, said Somasundaram PR, managing director at the WGC.

Demand in the world's largest gold consumer after China is yet to completely revive from the disruption of the cash ban and the Goods and Services Tax that hit smaller jewellers. Imports had declined in March ahead of Akshay Tritya, considered auspicious for buying the yellow metal.

In fact, the total number of auspicious days were also fewer at seven against 22 in January-March last year, leading to lower wedding-related purchases, said Somasundaram. Besides, unorganised jewellers are still coping with the GST implementation unlike organised players who transitioned faster.

Overall gold demand fell 12 percent to 115.6 tonnes. Somasundaram expects a reversal in the medium term as rural incomes increase and the GST leads to greater ease of doing business. Both augur well for the gold industry in 2018, he said, maintaining the annual demand forecast for India at 700-800 tonnes.

Globally, it was weakest first quarter since the 2008 financial crisis. Gold demand fell 7 percent to 973.5 tonnes due to a decline in demand for gold bars and gold-backed exchange-traded funds along with range-bound gold prices, according to a WGC statement. Jewellery demand, however, remained stable at 487.7 tonnes as buying in China and the U.S. offset the weaker Indian demand.

“We are just waiting to see how and at what point of time people do enter the gold investment market again,” said Somasundaram. The muted interest in gold despite volatile equity markets, according to him, was not a bad sign as consumers were not withdrawing from gold-backed ETFs as they did in 2017.

Rising interest rates, a weakening dollar and strong global growth will provide more incentive and price cuts could trigger a lot of action, he said.