In­dia’s Q2 Gold Jew­ellery De­mand Falls 8% To 147.9 Tonnes

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Global Q2 gold jew­ellery de­mand dipped 2% to 510.3 tonnes largely due to a weaker In­dian mar­ket, ac­cord­ing to the World Gold Coun­cil’s (WGC’s) lat­est Gold De­mand Trends re­port. Chal­leng­ing con­di­tions in a few mar­kets were the main rea­son for the year-on-year global de­cline in Q2 gold jew­ellery de­mand.

In­dia and the Mid­dle East were the main driv­ers of the de­cline, al­though weak­ness in those mar­kets was partly off­set by growth in China and the US. Com­par­ing H1 2018 with H1 2017, de­mand was lit­tle changed: 1,031.2 tonnes com­pared with 1035.8 tonnes, WGC said.

“It may seem sur­pris­ing that gold jew­ellery de­mand failed to perk up in re­sponse to the rel­a­tively sharp de­cline in the US$ gold price over the quar­ter. But cur­rency weak­ness in many mar­kets meant that lo­cal con­sumers did not ben­e­fit from sim­i­lar gold price re­duc­tions; in­stead they were faced with steady – or even higher – prices,” the re­port said.

WGC noted that In­dian gold jew­ellery de­mand was down from a strong Q2 2017, fall­ing 8% to 147.9 tonnes due to high lo­cal prices and sea­sonal fac­tors, but was in line with the longterm av­er­age. The year-on-year drop in de­mand was mag­ni­fied by the jump in de­mand seen in Q2 last year when con­sumers rushed to make gold pur­chases be­fore GST was im­ple­mented on July 1st. In a longer-term con­text, In­dian jew­ellery de­mand was rel­a­tively healthy, just 1% be­low the five-year quar­terly av­er­age of 149.1 tonnes and 3% higher than av­er­age Q2 de­mand over the pre­ced­ing ten years (144.1 tonnes).

Ac­cord­ing to the re­port, In­dian gold de­mand was boosted in April by Ak­shaya Tri­tiya and the

wed­ding sea­son, be­fore fiz­zling out. “In­dia’s gold trade re­ported brisk de­mand dur­ing the fes­ti­val, de­spite rel­a­tively high lo­cal gold prices at that time. And wed­din­gre­lated pur­chases sup­ported de­mand early in the quar­ter. This pos­i­tive ef­fect soon wore off how­ever, as the ru­pee con­tin­ued to weaken against the US$, keep­ing the do­mes­tic gold price el­e­vated,” it said.

Ad­hik Maas – an in­aus­pi­cious time for Hin­dus – was also a con­tribut­ing fac­tor to the yearon-year de­cline. Ad­hik Maas is an ad­di­tional month in the Hindu cal­en­dar, which oc­curs ev­ery 30-36 months in or­der to align the lunar and so­lar cal­en­dars. It is con­sid­ered an in­aus­pi­cious time for events such as wed­dings, so tends to have a damp­en­ing ef­fect on gold jew­ellery de­mand. The start of Ad­hik Maas in mid-May co­in­cided with the lo­cal gold price mov­ing quite sharply into dis­count ver­sus the US$ price.

The im­mi­nent mon­soon kept de­mand sub­dued to­wards the end of the quar­ter. Al­though the in­aus­pi­cious Ad­hik Maas pe­riod ended on June 13th, it was rapidly fol­lowed by the on­set of mon­soon prepa­ra­tions among ru­ral com­mu­ni­ties, aided by gov­ern­ment at­tempts to boost farm in­comes (such as loan waivers and rais­ing Min­i­mum Sup­port Prices on cer­tain crops). Farm­ing com­mu­ni­ties were heav­ily in­volved in sow­ing crops ready for the mon­soon – of­ten a time dur­ing which gold is used as col­lat­eral for loans to buy seed rather than to pur­chase gold jew­ellery.

Sim­i­larly, eco­nomic fac­tors and a new VAT regime in some mar­kets hit Mid­dle East­ern de­mand. Gold jew­ellery de­mand in the Mid­dle East dropped 12% to 42 tonnes in Q2 ver­sus a year ear­lier. On the other hand, Chi­nese gold jew­ellery de­mand ex­tended its re­cent re­cov­ery, gain­ing 5% to 144.9 tonnes in Q2. Year-to-date de­mand reached a three-year high of 332.9 tonnes. Chi­nese con­sumers re­sponded well to in­dus­try fo­cus on in­no­va­tion and brand­ing, WGC noted. US jew­ellery de­mand, too, con­tin­ued along its re­cent path of steady growth: de­mand grew 5% to a ten-year Q2 high of 28.3 tonnes.

To­tal gold de­mand

Global gold de­mand re­mained muted in Q2 2018 at 964 tonnes,

4% be­low the same pe­riod in 2017, ac­cord­ing to the WGC. Global bar and coin in­vest­ment was vir­tu­ally un­changed at 248 tonnes. Stronger de­mand in China and Iran – fu­elled by in­creas­ing geopo­lit­i­cal ten­sions with the US – were off­set by falls in Tur­key, In­dia and Europe, where lo­cal prices re­mained el­e­vated.

Cen­tral banks added 89t of gold to global of­fi­cial re­serves in Q2 2018, down 7% com­pared with Q2 2017. Cu­mu­la­tive H1 2018 pur­chases of 193 tonnes were the high­est since 2015. Along­side the fa­mil­iar list of Rus­sia, Tur­key and Kaza­khstan, the Re­serve Bank of In­dia re­turned to the mar­ket, al­beit with only a very small pur­chase (+2.5 tonnes).

Alis­tair He­witt, head of mar­ket in­tel­li­gence at the WGC, com­mented: “It’s in­ter­est­ing how in­vestors around the world have re­acted to some of the risks stalk­ing fi­nan­cial mar­kets. Weaker eco­nomic prospects and tum­bling cur­ren­cies off the back of height­ened ten­sions with the US boosted Chi­nese and Ira­nian gold de­mand, while US in­vestors shrugged off any geopo­lit­i­cal con­cerns. De­mand from tech com­pa­nies con­tin­ued to grow, with H1 de­mand reach­ing a three-year high, while eco­nomic growth boosted jew­ellery de­mand in the US with Q2 de­mand hit­ting a ten-year high.”

The to­tal sup­ply of gold in­creased by 3% in Q2 2018 to 1,120 tonnes, sup­ported by in­creased mine pro­duc­tion and re­cy­cling growth. Mine pro­duc­tion in Q2 saw a rise of 3% to 836 tonnes, the high­est Q2 on record, as projects in Rus­sia, In­done­sia and Canada con­tin­ued to ramp-up. Gold re­cy­cling also grew, as cur­rency weak­ness in In­dia, Tur­key and Iran boosted lo­cal gold prices and en­cour­aged con­sumers to lock in prof­its from their hold­ings.

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