New Delhi:
India's gold demand is expected to soften in the September quarter as record high local prices dampen buying in the world's second biggest consumer of the precious metal, the World Gold Council (WGC) said on Thursday.
The fall in consumption could weigh on global prices that have risen nearly 10 per cent so far in the 2019, but could help in bringing down the south Asian country's trade deficit, supporting the rupee.
Rural distress, higher prices and a hike in India's import tax could dampen demand during the September quarter, said Somasundaram PR, the managing director of WGC's Indian operations.
Two-thirds of India's gold demand comes from rural areas, where jewellery is a traditional store of wealth.
But this year's monsoon has so far delivered less-than-average rainfall, delaying sowing in many parts of the country and raising concerns the success of summer-sown crops.
Indian gold futures hit a record high of Rs 35,409 ($511.54) per 10 grams in July. Local prices have risen 10 per cent so far in 2019.
However, demand would recover in the final quarter, Somasundaram said. In a report published on Thursday, the WGC forecast India's gold consumption in 2019 at 750 to 850 tonnes, from 760.4 tonnes last year and a 10-year average of 838 tonnes.
"People will get used to these kinds of prices and normal buying will resume," he said.
Demand usually rises in the October-December quarter due to the wedding season and festivals such as Diwali, when buying bullion is considered auspicious.
Meanwhile, scrap gold supplies in India could increase 15 per cent in 2019 to around 100 tonnes as the rally in local gold prices prompts consumers to sell old trinkets and jewellery, he said
In the first week of July, India raised the import duty on gold to 12.5 per cent from 10 per cent as policymakers try to bring down the fiscal deficit and recapitalise banks.
The duty hike could lift gold smuggling in 2019 above last year's around 95 tonnes, Somasundaram said.
India's gold consumption in the June quarter rose 13 per cent to 213.2 tonnes on higher jewellery and investment demand, helping India surpass China as the biggest consumer of the metal in the world for the first time since the December quarter of 2013, the WGC said in its report.
Global Demand
Global gold demand grew by 8 percent year-on-year to 1,123 tonne in the April-June quarter of 2019, mainly driven by central banks purchases and rise in investments in gold-backed ETFs, according to a report.
The overall demand in the second quarter of 2018 was at 1,038.8 tonne, according to the World Gold Council's Q2 Gold Demand Trends report.
As per the report, central banks' demand grew by 67 percent as they bought 224.4 tonne of gold in April-June 2019, compared to 152.8 tonne a year ago.Poland was the largest purchaser during the quarter, as the country added 100 tonne to its reserves, bumping giant purchaser Russia into second place, the report said.
Total investment demand was 1 per cent firmer year-on-year, as healthy exchange-traded fund (ETF) inflows in Europe counterbalanced a 12 per cent drop in bar and coin demand, the report added.
The holdings of gold-backed ETFs grew 67.2 tonne in April-June period to a six-year high of 2,548 tonne.
"Continued geopolitical instability, dovish commentary on monetary policy from central banks, and the rallying gold price in June were the main factors driving inflows into the sector in Europe," WGC Managing Director, India, Somasundaram PR told PTI here.
Bars and coins saw 12 percent drop in the second quarter mainly due to China following the easing of currency concerns and high prices.
WGC Head of Market Intelligence Alistair Hewitt said June was a big month for gold as the price broke out of a multi-year trading range to hit a six-and-a-half year high and gold-backed ETF assets-under-management grew by 15 per cent – the largest monthly increase since 2012.
"While the Fed's dovish turn was a key driver for this, it also builds on a strong H1 which saw gold demand hit a three-year high, underpinned by extremely strong central bank buying. But we also saw an uptick in sales at an individual level as investors took advantage of June's price rally to lock-in profits, jewellery recycling and retail bar and coin liquidations both rose," he added.
Meanwhile, the jewellery demand witnessed 2 percent growth at to 531.7 tonne from from 520.8 tonne in same period of 2018, due to strong recovery in India's jewellery market driven by a busy wedding season and healthy festival sales, before the June price rise brought it to a virtual standstill.
Gold supply grew 6 percent in Q2 to 1,186.7 tonne from 1,121.3 tonne in the same period last year boosted by the sharp June gold price rally.
A record 882.6 tonne for Q2 gold mine production and a 9 percent jump in recycling to 314.6 tonne led the growth in supply.
"As we head into H2, we believe the factors underpinning ETF inflows and central bank buying, including looser monetary policy and geopolitical uncertainty, will continue. Consumer demand, however, may be a bit soft as people adapt to the higher price level," Hewitt added.