The global demand for gold in the first quarter of calendar year 2012 declined by about five per cent, chiefly due to an increase in import duty by India and consequent drop in demand in the country.
The first quarter report on demand trends from the World Gold Council (WGC) says demand in India fell 28.6 per cent in volume to 207.6 tonnes for the quarter, compared to 290.6 tonnes in the corresponding quarter of last year. The government had increased import duty to four per cent in two phases — January and March.
This affected global demand, said Ajay Mitra, WGC’s managing director, India and the Middle East, while issuing the report. Global demand fell to 1,097.6 tonnes for the period between January and March 2012, compared to 1,150.7 tonnes registered during the same period last year.
With the import duty now leviable on value instead of on quantity as was prevalent earlier, if importers have brought in quantities at a higher price, they will pay higher duty; when they supply gold during a price fall, they’ll be unable to pass on the full duty, as these would have to be calculated on the lower price. “This leads importers to destocking and importing less, to avoid the risks involved, and has become a major reason for the reduced demand in India, reflected in global gold demand,” he said.
Perhaps for the first time, WGC did not release India’s gold import data. The quantity has been falling for quite a while. However, compared to the December quarter of 2011, demand for the March 2012 quarter was higher by 35 tonnes. As quarterly recycled gold demand has been in the range of 15-20 tonnes, imports were estimated at 190 tonnes during the quarter, almost 20 per cent higher than in the December quarter when it was 157 tonnes. Imports were 306 tonnes in the March quarter of 2011.
Other factors such as the 21-day strike by retailers and negative consumer sentiment due to the economic scenario also had an impact on demand, said Mitra. For the next couple of quarters, he said the market seemed to be “cautious and a big part of the increase in demand depends on how the country's economy grows”.
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Outlook
High gold prices in rupee terms, due to the currency’s depreciation despite the international market falling, is likely to keep Indian demand subdued for some more time. “As far as import is concerned, we expect a difficult three quarters ahead,” said Mitra.
The government had brought clarity on excise duty issues and on tax deducted at source, which would help more imports to take place. Importers were learning how to manage inventory better and once this process was completed, there would be improvement, he felt.
Scrap sales of gold have come down steeply. Four years earlier, 124 tonnes of the total annual supply was from scrap sales; it is presently 40-50 tonnes a year.
The average price for 10g of gold had increased to Rs 27,287 in the first quarter of 2012, compared to Rs 20,176 during the same period last year, a rise of 35 per cent.
The jewellery segment saw a volume drop of 19 per cent at 152 tonnes in the first quarter of 2012, compared to 187.6 tonnes of demand during the same period of 2011. Gold investment demand fell in both value and volume terms. The volume decreased 46 per cent to 55.6 tonnes for January-March 2012, compared to 103 tonnes during the corresponding period of 2011. The value fell 27 per cent to Rs 15,170 crore for the period, compared to Rs 20,780 crore earlier, said WGC.
China
The demand trend report for the January-March 2012 quarter also quoted Marcus Grubb, managing director, investment, at WGC saying, “China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West. As we previously forecast, it is likely China will become the largest source of demand for gold in 2012.”
Reuters quoted a WGC executive today that China’s gold demand, which rose to a record in the first quarter of 2012, may gain to between 900 and 1,000 tonnes this year, from 769.8 tonnes in 2011. India’s consumption may drop to 800-900 tonnes, from 933.4 tonnes, Reuters added.
On investments, while gold coins and biscuit sales were decreasing, there was growth in gold exchange-traded funds, said Grubb.
China has been the largest jewellery market for a third year, with around 30 per cent growth in the first quarter of 2012. While there was a softening of demand in India, China's investment and jewellery demand reached 255.2 tonnes, up 10 per cent on the previous year's levels, says the study. Investment demand posted growth of 13 per cent at 98.6 tonnes for the quarter ended March 2012, as against the same period of last year, led by investor sentiment turning to preservation of wealth amidst ongoing concerns over inflation. Its jewellery demand rose 30 per cent at 156.6 tonnes for the quarter, says the WGC announcement. The past two quarters have seen China’s gold demand turn out to be higher than that of India. However, on an annual basis, China is still the second largest gold consumer in the world, after India.