Gold imports surge 67% in 2017 on restocking, retail demand

India’s gold imports surged 67 per cent in 2017 from the previous year to 855 tonnes, as jewellers replenished inventory amid a rebound in retail demand, provisional data from precious metals consultancy GFMS showed.

The rebound in purchases by India, the world’s second-biggest consumer of gold after China, could support global prices, which are already near their highest levels in three months. Spot gold values gained more than 13 per cent last year, their best annual performance since 2010.

“Jewellers were replenishing inventory in the first half of 2017 after demonetisation in the last quarter of 2016,” Sudheesh Nambiath, a senior analyst with GFMS, a division of Thomson Reuters, said on Tuesday.

In November 2016, Prime Minister Narendra Modi scrapped ~500 and ~1,000 denomination of currency notes, which accounted for 86 percent of the value of cash in circulation, part of a crack down on corruption, tax evasion and the financing of militant groups. The move created a cash crunch and dampened gold purchases in the last quarter of 2016. As cash became available over 2017, jewel le rs and dealers started restocking bullion.

Good monsoon rains in 2017 also helped to revive farmers income and retail demand in rural areas, said a Mumbai-based dealer with a private bank. Rural demand takes up two-thirds of India’s total.

In mid-December, global gold prices fell to their lowest level in five months in anticipation of a hike in interest rates from the US Federal Reserve. “The price correction encouraged trading houses and banks to increase imports last month,” said a Mumbai-based bullion dealer with a private bank.