India’s Q3 Gold Jewellery Demand Shrinks
old jewellery demand in India was again soft due to higher and volatile prices of gold and government regulation curtailing unaccounted income, according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report released on November 8th. Indian jewellery demand dropped by 28% to 154.7 tonnes in the July- September period from 214.1 tonnes a year earlier.
“The persistent weakness in this market in recent quarters means that India’s share of total jewellery demand has shrunk from 28% in Q1–Q3 2015 to 24% year-to-date. India has taken a smaller slice from a smaller pie,” the report said.
Rural Indian consumers were hesitant, but indications for this sector are encouraging, WGC said. Although demand among the rural population was softer than may have been expected, given the improved monsoon rainfall this year, it was relatively resilient compared with demand in urban areas. Partly, this is due to the typically smaller transaction size made by rural consumers, making them less likely to meet the requirement for PAN cards, which has severely hampered urban demand.
And signs of continued recovery in this sector of the population can be gleaned from looking at indicators such as sales of tractors. Mahindra and Mahindra, India’s leading tractor manufacturer, reported a 37% increase in domestic tractor sales compared to Q3 2015, growing by a whopping 70% in September. Rajesh Jejurikar, president and chief executive of Mahindra & Mahindra’s farm equipment and two-wheeler division, said, “In September 2016 we had a strong growth of 70% over September 2015, with sales of 29,035 tractors in the domestic market. We expect the good momentum to continue with the upcoming festive season and the effect of a good monsoon.”
The monsoon rains were well distributed and about 85% of the country’s geographical area received normal or excess rains this year. Estimates are for a 7-8% increase in kharif foodgrain output in 2016, which will generate additional income for the rural sector to divert to gold in the coming quarters, WGC noted.
Subdued global demand
Worldwide gold jewellery demand in Q3 fell 21% year-on-year to 493.1 tonnes. This was the largest decline since Q2 2014 and the lowest third quarter for jewellery demand since 2011 – a time when average gold prices were some 28% higher than recent levels. Year-to-date jewellery demand is 18% down on last year: 1,423.6 tonnes versus 1,732.7 tonnes – the lowest Q1-Q3 total since 2009.
WGC said high prices were the key reason for continued weakness in the jewellery sector, which has been severely depressed throughout 2016 so far. “Barring just three or four very minor exceptions, jewellery demand fell in every consumer market that we track.”
In China, ongoing economic uncertainty contributed to a softening in sentiment towards the precious metal, which was magnified by high gold prices and changing consumer behaviour.
“Looking ahead, the fourth quarter – having started on a stronger footing – should see a recovery in the jewellery sector. The October drop in the gold price was fortuitously timed. The approach of key buying occasions, such as: the festival and wedding season in India; the main holiday season in Western markets; and Chinese New Year, make consumers in these markets more alert to lower prices.