Gold demand zooms in June quarter, but likely to lose sheen in 2019 on rising prices, hike in customs duty

Amid reports that demand for gold demand zoomed during the June quarter, a survey said that the demand may decline this year from a year ago to the lowest level in three years due to spiralling prices. The hike in customs duty is also seen as a reason to dip the demand. Domestic gold demand has gone up 14 percent during the June quarter on a year-on-year basis, according to a report in Business Standard. The demand for jewellery has gone up by 16 percent in the June quarter to 168 tonnes and investment demand witnessed rise by 10 percent to 44 tonnes, said the report citing GFMS Gold Survey: H1 2019 Review and Outlook. [caption id=“attachment_6687851” align=“alignleft” width=“380”] Representational image. Reuters[/caption] However, the country’s gold demand could fall 10 percent in 2019 from a year ago to the lowest level in three years as record-high local prices dent retail purchases during a key festive season, the head of an industry body told Reuters. Meanwhile, the customs duty hike, which was declared in the Union Budget, to 12.5 percent from 10 percent, the government is expected to get an additional revenue up to Rs 5,000 crore, said  The Economic Times citing a report of Kotak Institutional Equities. The duty hike will have a direct impact on the gold price, which will go up by 2.5 percent and this is expected to increase the value of the yellow metal kept by the individuals or households too by the same percentage, the report said. Bullion dealers and jewellers are reporting that sales have dropped to levels more than 50 percent below normal in the past 10 days, said B Govindan, president of All Kerala Gold and Silver Merchants Association. Lower purchases by India, the world’s second-biggest consumer after China, could limit a rally in global prices that hit a 6-year high earlier this week. “Of late, customers are not used to such a jump in prices,” Anantha Padmanabhan, chairman of the All India Gem and Jewellery Domestic Council (GJC) said. “They will not raise allocations to buy gold just because prices have risen. Volume-wise demand will drop 10 percent from last year.” Local gold prices hit a record Rs 35,960 ($519) per 10 grams on Tuesday, having jumped more than 10 percent over the past month, rising in line with international prices on tensions in the Middle East. India’s gold consumption dipped 1.5 percent in 2018 to 760.4 tonnes, below a 10-year average of 838 tonnes, according to data compiled by the World Gold Council. The council in May forecast consumption this year at 750 to 850 tonnes after demand rose 5 percent in the March quarter. But the sudden price rise has affected sentiment, jewellers said. Weak demand was forcing dealers to offer a discount of up to $25 an ounce over official domestic prices, the largest since September 2016. The domestic price includes a 10 percent import tax and 3 percent sales tax. Demand usually picks up in the second half of the year due to the wedding season and as Indians celebrate festivals such as Dussehra and Diwali, when buying gold is considered auspicious. “Demand will fall during festivals if prices remain at the current level,” said Mukesh Kothari, director at dealer RiddiSiddhi Bullions in Mumbai. Demand from rural areas has also softened due to drought in some areas and could remain under pressure if this year’s monsoon fails, Kothari said. The monsoon has been progressing slowly with rainfall 37 percent below average since the start of the season on 1 June. — With inputs from agencies