GST Fears Drive Up India’s Q2 Gold Jewellery Demand
India drove global Q2 jewellery demand growth almost single-handedly, according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report. Indian gold jewellery demand shot up 41% to 126.7 tonnes compared with just 89.8 tonnes in Q2 2016.
The WGC said the strong recovery had been widely expected after exceptional import figures were reported, hitting an all-time high of 104.6 tonnes in May as the market stockpiled gold ahead of the June GST rate announcement. Expecting a punitive GST rate, jewellers and consumers alike crammed their purchases into the first two months of the quarter, slowing down once the government confirmed that a 3% rate would be applied. Another brief flurry at the end of June, before the rollout of GST in July, pushed local prices to a premium of around $3-4/oz above the international price, although some traders reported paying a premium as high as $10/oz in some instances.
Demand was boosted by festivals, weddings and improved rural sentiment. Akshaya Tritiya – a key gold-buying festival in the Hindu calendar – boosted gold jewellery demand in the usual way. But the timing of the festival this year, falling as it did over a weekend and coinciding with a dip in the gold price, proved particularly encouraging. Estimates suggest that Akshaya Tritiya-related sales were up by around 30% year-over-year.
Rural sentiment improved further as the government continued to replace the currency that was plucked from the system by demonetisation in November, the report noted. Although the pace of remonetisation has slowed (particularly as digital transactions have gained popularity) the value of currency in circulation has recovered to around R15.4 trillion – around 86% of the pre-demonetisation value. This greater liquidity has boosted rural purchases, along with expectations of a good monsoon and the positive impact of a higher number of auspicious wedding days in the Hindu calendar (26 auspicious days in Q2 this year, compared with just 8 in Q2 2016).
The WGC said that although the 3% GST rate was lower than many in India had anticipated, it expects the new tax is likely
to cause some short-term disruption as manufacturers, retailers, importers and consumers adapt to the new regime. As consumers and importers brought forward their purchases to Q2, demand will likely be muted for a few weeks. Stock is plentiful across the supply chain and consumers who have recently purchased are unlikely to do so again in the short term.
“As the market digests this gold, and adapts to GST, we feel the market environment should become more settled towards the end of the year. This, we believe, should be helpful for gold demand – particularly as the key October festival season approaches,” it added.
Alistair Hewitt, head of market intelligence at the World Gold Council, commented: “The monsoon is looking good in India and, providing the market adapts to the new GST, we may see solid demand around Diwali.”
Global demand for gold jewellery of 480.8 tonnes was 8% higher year-on-year, but Q2 2016 was itself very weak; demand remained well below the five-year quarterly average of 586.2 tonnes. India was the main contributor to the 8% gain in Q2.
The H1 picture was similar: demand grew 5% from the very low levels of 2016, but at 967.4 tonnes, H1 jewellery demand was below 1,000 tonnes for only the fourth time in the WGC’s data series.
A girl tries on bridal jewellery with her mother at Tribhovandas Bhimji Zaveri, Mumbai. © World Gold Council