India’s gold demand slumped 38 per cent in the second quarter of the current calendar year as consumers abstained from fresh orders due to high prices.
According to the latest report by the World Gold Council (WGC), the demand for gold in the second quarter was 109 tonnes compared with 175.1 tonnes in the corresponding quarter last year. The demand on account of jewellery and net retail investment plunged 31 per cent and 56 per cent to 88 tonnes and 21 tonnes, respectively.
Gold’s demand in recession-hit economies, including the US and the EU, recovered in the second quarter, supported by about 40 per cent spurt in Chinese consumption, thereby showing a recovery in global retail investment demand, which was up by 12 per cent to 165.7 tonnes.
Global jewellery demand slipped 22 per cent to 404.1 tonnes, taking the overall consumption to 569.7 tonnes, 14 per cent lower than in the second quarter of the previous year.
However, the demand in India recovered from the exceptionally weak levels witnessed in the previous quarter but remained well below the level reached in the corresponding quarter of the previous year.
In value terms, the demand fell 25 per cent from Rs 21,000 crore to Rs 15,700 crore with jewellery off-take recording a fall of 17 per cent.
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The local gold price touched near-record highs during the quarter as the domestic economy remained under pressure. The pace of economic growth is expected to slow to around 6 per cent during the current financial year, the slowest since 2003. Nevertheless, growth rates in India remain far above those of most developed economies and activity may gather pace again in 2010-11.
Although the local gold price stayed below the highs recorded in the first quarter, it remained high on a historical basis, fluctuating in a relatively narrow band of Rs 14,000-15,000 per 10 gm almost throughout the quarter. WGC said Indian consumers had been discouraged by these prices because of two reasons: First, the high price made gold less affordable, particularly in the backdrop of the domestic slowdown; second was the fact that the price in a fairly flat sideways pattern discouraged demand.
Both consumers and wholesalers appeared to be waiting on the sidelines for more sizable falls, it said.
However, in the context of record high prices and the worst global recession for generations, consumers and investors have been hesitant to return to the market. Anecdotal evidence suggests that there is a considerable pent-up demand that could potentially be unleashed at lower prices, according to the council.
Furthermore, data show that in the 12 months till June 2009, bank deposits grew 22 per cent year-on-year. This suggests that consumers have preferred to stay invested in cash because of the economic downturn and gold price volatility and have a pool of readily-available funds that could be directed towards purchase of gold jewellery as and when the prices weaken.
Any fall in the price below the stubborn Rs 14,000 per 10 gm level might encourage consumers to return back to the market, it said.
In the meantime, it seems that consumers, to some extent, continued to meet their demand for jewellery by means of exchange, it said.
The council further said that the below-average rainfall during this monsoon was a further deterrent for demand towards the end of the quarter as the rural population is heavily dependent on a good monsoon season to boost their agricultural incomes.