Indian jewellery demand of 101.6 tonnes was around 32% lower y-o-y due to weaker consumer sentiment, noted the World Gold Council (WGC) in a latest update. Jewellery demand suffered as consumer confidence fell further over concerns around the slowing economy. Several indicators - such as lower sales volumes reported by large fast-moving consumer goods (FMCG) companies and domestic car/two-wheeler sales - pointed towards a slowdown in both urban and rural demand. Weak sentiment due to a liquidity crunch, excessive monsoon rains in some states, and the absence of any festivals, also influenced demand in the quarter. Demand received no support from the domestic price either. The gold price rally powered ahead during the quarter: it breached the Rs 35,000/10g level in mid-July and continued climbing to Rs 38,795/10g by the end of August, before reaching an all-time high of Rs 39,011/10g during the first week of September.
The two-month leap of around Rs 5,000/10g - from Rs 34,006/10g at the end of June - caught consumers completely off-guard, prompting many to delay buying. Despite a correction in the final few weeks of the quarter - due to the decrease in the international gold price and a strengthening rupee - the impact on demand was muted as it coincided with Pitru-Paksha, an inauspicious 16 lunar day period during which Hindus pay homage to their ancestors. Demand was further dented by a 2.5% rise in the custom duty on gold to 12.5%. This higher rate hit sentiment amongst both the gold trade and consumers, and fresh jewellery purchases suffered as a result. Consumers preferred gold-to-gold exchanges, which accounted for an average of 50-60% of purchases, while retailers wound down existing stocks.
Wedding-related purchases provided some support during the quarter. Wedding days in the Southern states of Tamil Nadu, Kerala and Karnataka supported jewellery demand during August and September. But volumes were 15-20% lower y-o-y due to the higher gold price. Jewellery retailers attempted to counter this by offering promotions - such as discounts on labour charges - but with limited impact.
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