In­dia’s Q3 Gold Jew­ellery De­mand Plum­mets 25%

Solitaire - - BULLETIN -

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

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