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In the wake of various restrictions on gold imports, consumption fell significantly to 148 tonnes in July-September, compared to 310 tonnes in April-June, shows the latest World Gold Council (WGC) report on demand trends, issued on Thursday.
In the quarter ending September 2012, demand was 210 tonnes, 32 per cent more. China’s demand in the same period was up 18 per cent, to 209.6 tonnes. WGC expects consumption in the December quarter to be lower than a year ago, but higher than the September’s. In September-December 2012, it was 262 tonnes.
WGC expects total demand in 2013 to be slightly higher than in 2012. “The strength of Indian demand in the first half means the full-year demand is on way to narrowly exceed the 2012’s 864 tonnes. The fourth quarter (Sep-Dec, the year being a calendar one) is traditionally a busy season, as it sees post-monsoon rural spending, major festivals and auspicious wedding days. I expect this to be true this year.” said Somasundaram P R, India managing director.
However, how the demand would be met is an issue. In the September quarter, of a demand of 148 tonnes, 61 tonnes was by recycled gold, which means selling of old jewellery and investments, and 85 tonnes from imports.
Unofficial (illegal or smuggled) import was another source, said WGC. “Gold entering unofficially through porous borders helped to meet the pent-up demand, together with an influx of recycled gold that was drawn out by higher prices and promotions offered by retailers. Heading into the fourth quarter, and the major Hindu festive season, latent demand among Indian consumers remains very strong, as reflected in the persistence of local price premiums above the global price.”
The government has raised the import duty to 10 per cent and said a fifth of all imports be re-exported (via value-added items), termed the ‘80-20 rule’. Also, 80 per cent of imports must go to jewellers, bullion dealers and banks.
WGC said the supply of recycled metal rose five-fold, to 61 tonnes in the September quarter, whereas global recycled supply fell 11 per cent. It would be difficult to see a repeat of higher recycling in any other quarter, said Somasundaram,
“The intervention of the government in restricting imports is reflected in the official levels of demand but this doesn’t indicate the appetite is waning. We have seen some increases in demand in other countries which have close links to India. Some metal may be making its way back through illicit channels, re-opened in recent quarters,” said Marcus Grubb, managing director, investment.
Somasundaram added: “Placing a curb on supply is unlikely to dampen demand. It would be good for the debate to move to how we can ease the regulatory landscape, and view it as a strategic investment asset, using it to enhance liquidity.”
<b>Overseas demand drops</b>
Globally, demand in the July-September quarter was 869 tonnes, down 21 per cent from a year ago. Gold-backed exchange traded funds (ETFs) had net outflows of 119 tonnes this quarter, compared to 402 tonnes in April-June, said WGC. In the June quarter, prices plummeted twice on sell-offs; these went below $1,200 an ounce in June, compared to above $1,500 an oz in the early days of April. While the fall in ETF investment demand contributed the most in the overall fall, jewellery demand globally went up five per cent to 486.7 tonnes. The jewellery demand in percentage terms rose in Hong Kong (28), Vietnam (14), Thailand (57) and Indonesia (19) from a year ago, though off low bases.
Similarly, demand in West Asia and North Africa was up nine per cent for the third quarter and 14 per cent in the US (the biggest export market for India in the sector).
Apart from jewellery, central banks globally were buying gold consecutively for a 11th quarter, though at a slower pace in this one. Net central bank purchases totalled 93 tonnes, 17 per cent down from a year ago.
