“We remain cautious about gold demand as it faces uncertainties due to elevated local prices and slowdown in discretionary spending,” said Somasundaram PR, regional chief executive officer of WGC’s Indian operations
Gold demand in 2023 could fall 10% from a year ago to their lowest in three years, as record high prices are dampening retail purchases, the World Gold Council (WGC) said on Tuesday.
The lower purchases in the world’s second-biggest gold consumer could limit a rally in global prices. Falling demand for gold imports could also help to narrow India ‘s trade deficit and support the rupee.
“We remain cautious about gold demand as it faces uncertainties due to elevated local prices and slowdown in discretionary spending,” said Somasundaram PR, regional chief executive officer of WGC’s Indian operations.
Demand could fall to 700 metric tons in 2023 from 774.1 metric tons a year ago, he said.
Indian gold consumption in the April-June quarter fell 7% to 158.1 metric tons, as both jewellery and investment demand dropped due to a rally in local prices, which hit a record high of 61,845 rupees per 10 grams in the quarter, the WGC said.
”The 7 per cent decline in Q2 gold demand is due to prevailing record high gold prices, which significantly impacted affordability and consumer sentiment,” Somasundaram told PTI.
There was a sharp rise in yellow metal prices in a very short span of time to a peak of Rs 64,000 per 10 gram. Also, some demand got shaved off due to the overall tax compliance in the country, he said.
Higher gold prices have been prompting some people to sell their old jewellery and coins, leading to a jump in scrap supplies, he said. In the June quarter, scrap supplies jumped 61% from a year ago to 37.6 metric tons, the highest in nearly 3 years, the data showed.
Gold smuggling has gained momentum because of record high prices and since New Delhi last year raised import duty on the precious metal, Somasundaram said.
Grey market operators, who smuggle gold in from overseas and sell it for cash to avoid duties, have been offering discounts, thus hurting organised players who pay duties, he added.
However, gold imports saw a 16 per cent jump to 209 tonnes during Q2 of 2023, from the year-ago period on account of stocking, WGC said in its latest report released on Tuesday.
With the first half of 2023 demand estimated at 271 tonnes, the full-year gold demand could be in the range of 650-750 tonnes in 2023, it added.
In value terms, India’s Q2 gold demand was Rs 82,530 crores, an increase of four per cent from Rs 79,270 crores in the year-ago period.
Out of the total gold demand, jewellery demand declined by eight per cent to 128.6 tonnes during the second quarter of this year, when compared with 140.3 tonnes in the year-ago period.
According to the report, 18k gold jewellery continued on an upward trend, as consumers were attracted by the affordability of these products.
Bar and coins demand also saw a marginal three per cent decline to 29.5 tonnes during Q2 of 2023, as against 30.4 tonnes in the year-ago period, the report said.
”Given the gold price, it would have been reasonable to expect far weaker gold jewellery demand. But arguably the supportive economic backdrop helped, with GDP growth forecast to increase by 6.3 per cent for FY 2023-24.
”A knee jerk reaction to the ban of 2,000 rupee notes during the quarter had a brief but notable impact on gold demand,” it said.
Although demand has held up relatively well so far this year, the report said, ”we are cautious regarding H2 prospects.”
Local prices, although off their record highs, remain elevated. And although the domestic economy remains relatively healthy, there are indications of a slowdown in discretionary spending, with FMCG sales apparently declining during the quarter, it said.
”The success – or otherwise – of the monsoon season will also have a considerable bearing on demand for the remainder of the year,” it noted.
According to the report, gold recycling in India witnessed a sharp spike during the quarter, with an increase by 61 per cent to 37.6 tonnes, compared to the previous year.
”Many consumers would have opted to book profits from historic high gold prices.” Asked about the impact of curbs imposed last month on import of certain gold items, Somasundaram said it was done to plug loopholes as people were using free trade agreements with Indonesia to get concession gold jewellery.
”This regulation will not impact imports. Anyways, jewellery is not freely importable,” he said.
Looking ahead to the rest of the year, Somasundaram said, ”We remain cautious about gold demand as it faces uncertainties due to elevated local prices and a slowdown in discretionary spending.
However, the success of the monsoon season could bolster sentiment ahead of Diwali season and throw positive surprises.”
India’s overall gold demand could be in the range of 650-750 tonnes in 2023 if prices continue to hold at the current level, he added.