GST Fears Drive Up In­dia’s Q2 Gold Jew­ellery De­mand

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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).

Out­look sub­dued

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

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