India's Q2 gold demand drops 18% to 131 tonnes: WGC

India's gold demand in the second quarter this year fell 18 per cent to 131 tonnes on account of rise in prices, government regulations and jewellers' strike, the World Gold Council (WGC) said in its latest report.

Total gold demand stood at 159.8 tonnes in the corresponding quarter last year, according to the WGC Gold Demand Trends Q2 2016 report.

In terms of value, India's gold demand for April-June period dropped by 8.7 per cent to Rs 35,500 crore, compared to Rs 38,890 crore in the corresponding quarter of 2015.

"Consumer demand fell 18 per cent in the country to 131 tonnes in Q2 2016, as it was a truncated period for sales as jewellers' strike extended into April and remained more or less effective until 'Akshaya Tritiya' (considered an auspicious occasion for buying gold), when sales saw a brief boost," Somasundaram PR, managing director-India, WGC, told PTI here.

"However, elevated price levels and a regulatory push for transparency through PAN cards, tax collection at source and excise duty on jewellery, coupled with weaker rural incomes kept demand subdued," he said.

Total jewellery demand in India for the period was down by 20 per cent to 97.9 tonnes, compared to 122.1 tonnes in the same quarter of 2015.

Similarly, the value of jewellery demand was at Rs 26,520 crore, a fall of 10.8 per cent from Rs 29,720 crore in the second quarter of 2015.

Total investment demand for the June quarter was down by 12 per cent to 33.1 tonnes, from 37.7 tonnes in same period last year.

In value terms, gold investment demand was Rs 8,980 crore, a drop of 2.1 per cent from Rs 9,170 crore in Q2 2015.

During the quarter under review, total gold recycled also declined to 23.8 tonnes, from 24.0 tonnes a year ago.

The second quarter also witnessed a spurt in the flow of unofficial gold into the country, significantly impacting the organised and tax compliant segments of the gold industry, Somasundaram opined.

"There was a pick up in grey market in Q2, and, according to reports, around 40-45 tonnes gold flow was through unofficial channel. However, this is a temporary phenomenon and as soon as the market moves in the right direction this will go down significantly," he said.

He further said that imports declined by 38 per cent in the first half of the year to 291 tonnes as compared to 470 tonnes in the same period a year ago.

"We expect imports to pick up in the last four months of this year, specially towards end of September to stock up for catering to the festival as well marriage demand," he said.

He said that in the remaining six months of 2016, the gold demand is expected to return to normalcy during the peak season of weddings and festivals closer to Diwali, supported by good monsoon that will positively impact rural demand.

"It will benefit both consumers and the trade to transition swiftly to the new reality of better tax compliance, across segments, nationally," Somasundaram said.

Looking at the trend, gold demand in India for 2016 has been revised to 750-850 tonnes.

"Even as the trend looks positive, we don't expect that the second half can make up for lost demand. So we have pegged the total demand for 2016 at 750-850 tonnes," he said.

Earlier, the WGC had forecast India's full year demand is in the range of 850-950 tonnes.