India’s Q3 Gold Jewellery Demand Plummets 25%
he recovery in Indian gold jewellery demand during the first six months of 2017 was derailed in Q3 by regulatory intervention, according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report. After three consecutive quarters of growth, demand fell by 25% year-on-year to 114.9 tonnes in the third quarter.
The introduction of the 3% Goods and Services Tax (GST) at the beginning of July was a contributing factor. A large swathe of Indian consumers had pre-empted the introduction of GST by bringing forward their gold purchases to Q2. This left demand a little flat at the beginning of July, the WGC said.
The jewellery trade also struggled with the new tax system. While large, organised retailers, with their sophisticated accounting and inventory-management systems, were well equipped to cope with the transition to GST, smaller, unorganised retailers faced difficulties.
Onerous anti-money laundering regulation added to the industry’s woes. Already suffering from weaker sentiment, the jewellery industry suffered a further blow when the government brought the gems and jewellery industry under the umbrella of the Prevention of Money Laundering Act (PMLA) in late August. The Act placed an administrative compliance burden on retailers and consumers alike, requiring ‘ know your customer’ (KYC) documentation for all jewellery transactions with a value of
(roughly equivalent to $750) or above. Demand therefore remained under pressure, particularly in rural India, where cash transactions are the norm, as consumers shied away from providing official ID to support gold purchases.
Recognising the difficulties placed on the industry by the regulation, the government lifted the PMLA from the gems and jewellery sector in early October. This decision was well-timed, coming just ahead of Diwali. Consumer sentiment improved dramatically, although reports suggest only average festive season buying due to the continuing obstacle of GST.
Monsoon sent mixed signals for demand. Total monsoon rainfall, although broadly normal (around 5% below the long-term average), was distributed unevenly across the country. Inconsistent rainfall during the kharif crop-sowing season, together with prolonged monsoon rains that inflict damage on these crops, have the potential to impact rural incomes in some areas. This could have a knock-on effect on jewellery demand in these areas over coming quarters, although the effect will be mitigated by aid measures. The government raised the Minimum Support Price (MSP) for kharif crops and waived farm loans to the tune of billion ($12 billion) in the key food-producing states of Maharashtra, Punjab and Uttar Pradesh.
“There are reasons for cautious optimism. Our view remains that the market will continue to adapt to GST, allowing demand to recover to a certain extent. Inventory levels in the market are healthy and the removal of the PMLA legislation should encourage demand. But this positive view will likely be tempered by the impact of the uneven monsoon rainfall distribution,” the WGC said.
Global gold jewellery demand fell 3% year-on-year to 478.7 tonnes in Q3, dragged down by the weaker quarter in India. While ETFs had another quarter of positive inflows, these fell far short of the remarkable 144 tonnes influx into the sector in Q3 2016. Investors continued