Gold regains lost lustre in Apr-Jun

Chennai: Return of good monsoons, strengthening rupee and pre-GST jitters propelled gold buyers to increase purchase in April-June quarter by 37% at 167.4 tonnes, compared with the same period last year when the demand was at 122.1 tonnes.

P R Somasundaram, MD, India, World Gold Council (WGC) said that the average gold price for Q2 2017 stood at Rs 26,048, as compared with Rs 27,099 for the same period the previous year. “The rupee strengthening is one of the reasons for the drop in prices and consumers have made the purchases early this year, followed by remonetisation and pre-GST rush to purchase gold before the new tax regime kicked in,” he added.

During the same time last year, high gold prices along with introduction of excise duty and mandatory disclosure of PAN deterred consumers from buying gold. This resulted in a 5-year low in Q2 gold demand in 2016, jewellers said. “This year, however, during first half of Q2, buyers were low on sentiment but the second half was good as many were aware that GST was going to kick in and fearing an increase in prices post-July, many thronged the shops,” said Jayantilal Challani, president, Madras Jewellers and Diamond Merchants Association.

Looking forward, the WGC says that the second half of the year would see a rangebound increase in demand despite good monsoons. “As consumers and traders adapt to the new compliance systems, we predict the demand to be 650-750 tonnes, while the 5-year average demand is still higher at 848 tonnes. The second half of this year would see a demand of 450 tonnes, slightly lower than usual, as many have advanced purchases to the first half,” said WGC’s Somasundaram.

Jewellers on the other hand, predict increase in purchase after GST, as it opens their avenues to jewels from other cities and the retail prices would not increase significantly. “Demand has picked up now after a 10-day lull in July. Also, the second half is filled with weddings and occasions like Diwali etc, and we can expose the buyers to more designs by bringing in original jewels from Mumbai, Rajkot etc, without worrying about taxes. It is a relief as we can now claim the input tax credit, which was not possible in the earlier VAT system,” added Challani.

Despite robust demand in the first half, the WGC kept its forecast for India’s full-year demand at 650 tonnes to 750 tonnes, lower than a 10-year average of 845 tonnes, but just above last year’s level.

Gold smuggling into India is likely to rise in 2017 from last year’s around 120 tonnes as the hike in sales tax has effectively lifted margins for ‘grey market’ operators amid transition to the new tax system, Somasundaram said.