India’s gold demand slumped 38 per cent in the second quarter of the current calendar year on consumers abstaining from fresh orders due to prices frequently hitting record high.
According to the latest report by the World Gold Council (WGC), gold demand in the second quarter was recorded at 109 tonnes in the quarter ended June this year as compared to 175.1 tonnes in the corresponding quarter last year. Jewellery and net retail investment demand plunged by 31 per cent and 56 per cent to 88 tonnes and 21 tonnes, respectively.
Gold’s demand in the recession - hit economies including the US and EU recovered in the second quarter which was well supported by the about 40 per cent spurt in overall Chinese consumption, thereby, showing a recovery in global retail investment demand of 12 per cent at 165.7 tonnes.
While global jewellery demand slipped by 22 per cent at 404.1 tonnes thus, taking an overall consumption at 569.7 tonnes in the second quarter of the current year, 14 per cent lower than the same period previous year.
However, second quarter gold demand in India recovered from the exceptionally weak level witnessed in the previous quarter, but remained well below of the level in the corresponding quarter of the previous year.
In value terms, gold demand fell 25 per cent from Rs 210 billion to Rs 157 billion with jewellery off-take recording a fall of 17 per cent.
The local gold price hovered at near record highs during the quarter and the domestic economy remained under pressure from the global recession. The pace of economic growth is expected to slow to around 6 per cent during the current fiscal year, which would be the slowest rate since 2003.
Nevertheless, growth rates in India remain far above those of most developed economies and activity is forecast to gather pace again in 2010-11.
Although the local gold price stayed below the record highs recorded in the first quarter, it remained very high on a historical basis, fluctuating in a relatively narrow band between Rs 14,000 per 10 grams and Rs 15,000 per 10 grams almost throughout the quarter.
WGC said that Indian consumers had been discouraged by these prices are two-fold: firstly, the high prices make gold less affordable, particularly given a backdrop of domestic slowdown and global recession; and secondly, the fact that the price has been in a fairly flat sideways pattern has discouraged demand.
Both consumers and wholesalers appear to be waiting on the sidelines for more sizable dips to provide a more attractive buying opportunity.
Historically, following a period of volatility in the gold price, demand has returned again once despite prices looks stabilised a new floor at higher levels.
However, taken 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 considerable pent-up demand that could potentially be unleashed at lower prices.
Furthermore, data show that in the 12 months to end-June 2009, bank deposits grew by 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 purchases of gold jewellery should the price weaken.
Any dips in the price below the stubborn Rs 14,000 per 10 grams level would be likely to encourage consumers back to the market. In the meantime, it seems that consumers, to some extent, continued to meet their demand for jewellery by means of exchange, whether through exchanging old items for new or through the melting down and re-making of old pieces.
WGC further said that below-average rainfall during this monsoon season, was a further deterrent to gold demand towards the end of the quarter as the rural population is heavily dependent on a good monsoon season to boost their agricultural incomes.
