Gold demand drops to 7% in India during April-June quarter due to record high prices: WGC

India, the world's second largest gold consumer, saw gold demand decline by seven percent to 158.1 tonnes during the April-June quarter due to record high prices in the domestic market, according to the World Gold Council (WGC).

Gold purchases in India this year are forecast to drop to the lowest since the Covid-19 pandemic hit the second-biggest consuming nation in 2020, with high domestic prices deterring buyers.

India is expected to buy between 650 and 750 tons of gold in 2023, according to P.R. Somasundaram, the regional chief executive officer for India at the World Gold Council. The range is lower than the 774 tons purchased last year and the lowest since the 446 tons purchased in 2020, according to the London-based group.

Somasundaram PR, Regional CEO, India, World Gold Council said, “This decline can be attributed to the prevailing record high rupee gold prices, which significantly impacted affordability and consumer sentiment. The demand for investment too dropped marginally by 3% to 29.5t from 30.4t in Q2 2022. There was a brief but notable impact on gold demand following the kneejerk reaction to the ban of 2,000-rupee notes during the quarter."

The yellow metal price rose rapidly from Rs 30,000 per 10 gram to Rs 64,000 in just a few short months. As a result of the overall tax compliance in the country, some demand was also shaved off.

The WGC report shows that the country's gold demand dropped by 7 percent to 158.1 tonnes in Q2 this year, from 170.7 tonnes a year ago.

Gold demand in India increased by four percent in Q2 to Rs 82,530 crores from Rs 79,270 crores a year ago.

As a percentage of total gold demand, jewellery demand declined by eight per cent to 128.6 tonnes in the second quarter of this year, compared with 140.3 tonnes a year ago.

As consumers were attracted by the affordability of these products, 18k gold jewellery continued on an upward trend.

Also during Q2 of 2023, demand for bars and coins decreased by three percent to 29.5 tonnes, compared to 30.4 tonnes in Q2 of 2018.

"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 percent 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.

(With Inputs from agencies)