India’s gold jewellery demand is likely to increase by 17 per cent during the calendar year 2017, on reviving demand after a drop in post-demonetisation consumer offtake.
Rating agency. India Rating, in its latest study forecasts India’s gold jewellery demand at 600 tonnes for calendar 2017, which is equivalent to the last five years’ average. Data compiled by the World Gold Council (WGC) estimated India’s gold jewellery demand at 514 tonnes for 2016.
“The underlying theme for jewellery demand remains robust, given India’s demographics and the consumer’s affinity towards gold for both wedding-related purchases and as a store of value. Hence, the demand is likely to rebound and exceed the five-year average of 600 tonnes in 2017,” said Harsha Sodhani, an analyst with India Ratings.
India’s overall gold demand plunged by a staggering 21 per cent during calendar 2016 at 675.5 tonnes compared to 8,572 tonnes the previous year. Of this, investment demand contributed to 25 per cent or 161.5 tonnes of the total.
The decline can be attributed to many negative factors that hampered consumer sentiment throughout the year. Firstly, jewellers went on a 42-day nationwide strike protesting excise duty levy. Secondly, the government reduced the minimum threshold of know-your-customer (KYC) from Rs 500,000 tonnes Rs 200,000. Above all, demonetisation sucked out all the cash from the system, due to which cash purchases, which constituted as much as 50 per cent of overall jewellery sales, coming to standstill.
“Calendar 2017 provides a major opportunity for investors buying into the yellow metal’s safe haven appeal. Gold is hovering around the psychological mark of $1,200 an oz due to weakening of the dollar in February. Recently, however, the US economy has shown resilience and the dollar has begun to strengthen. Gold, however, has stood its ground and has retained most of its shine. Geopolitical tensions in Ukraine and Syria, and the South China Sea conflict have ensured that world peace is often disrupted. Unfortunately, it remains an ongoing threat causing safe haven appeal for gold,” said Prithviraj Kothari, Managing Director, RiddiSiddhi Bullions Ltd.
Experts believe that investment demand of gold might get impacted due to several factors such as a possible interest rate increase by the United States Federal Reserve (US Fed) in March, indicated by Fed chair Janet Yellen. Mehul Choksi, Managing Director, Gitanjali Gems, believes gold demand will bounce back due to increased attraction on the part of investors towards US treasury. This will, in turn, lead to an appreciation in the dollar against major global currencies.
India’s gold investment demand fell by 17 per cent to 161.5 tonnes during 2016 from 194.9 tonnes from 2015. Experts, however, do not see a further fall in investment demand from this level. Assuming investment demand to remain at 160 tonnes this year — almost same as last year — India’s overall gold demand might hit 750 tonnes during calendar 2017, which is similar to the WCG forecast.
In fact, India’s gold jewellery demand recorded a marginal 3.5 per cent jump to 182.2 tonnes during October-December 2016 as from 176 tonnes for the same quarter a year ago. India’s investment gold demand was also up 2.8 per cent to 61.8 tonnes for the October-December 2016 quarter from 60.1 tonnes a year ago.
India Ratings believe that retailers face an overhang of the impending Goods and Service Tax (GST) bill and a higher slab rate may turn out to be a demand dampener particularly for the non-wedding segment (accounts 35 -45 per cent of the demand).