The unthinkable has happened. India’s appetite for gold has slowed down.
According to the World Gold Council (WGC), demand for the yellow metal fell 39 percent to just above 204 tons from a year earlier in the quarter ended June. The investment demand, i.e. buying of gold in the form of coins or bars dropped by 67 percent.
A weak monsoon season and high inflation have cut the purchasing power of rural consumers, leading to the drop, some bullion analysts feel. They expect India’s total gold demand in 2014 to go as low as 850 tons from 975 tons last year.
In that sense, what has happened in India is in keeping with global trends. The WGC said global demand for gold in the second quarter of 2014 declined 16 percent year-on-year to 964 tons. The demand for the yellow metal was at 1,148 tons during the corresponding quarter in 2013.
Global jewelry demand, which represents more than half of total global demand, was down 30 percent year-on-year to 510 tons. In value terms, gold demand in Q2 2014 was down by 24 percent to $40 billion compared to Q2 2013.
In India, though, one puzzling fact was that while the official demand for gold fell, the number of gold smuggling cases were up. Smuggled gold in the country will be around 200 tons this year, predicted the WGC.
The seizure of smuggled gold in the first three months of the current fiscal is already more than 50 percent of the total amount seized during the entire previous fiscal. According to figures released by the Indian government, between April and June 2014, it had intercepted $44 million worth of smuggled gold at the country’s airports.
Compare that with the total $82 million of smuggled gold in the year ended March 31, and you can see where this is headed.
Last year, between April and July, the Mumbai Airport Customs Agency had seized 61.46 kg gold, while through July, it had seized 403.52 kg.
Incidents of gold smuggling are going up because of the 10 percent import duty imposed on the yellow metal by the Indian Government to bring down the nation’s fiscal deficit. It is difficult, though, to say whether the amount of gold being smuggled in has increased, or the number of seizures has simply gone up.
Bullion analysts say the major purchase season of gold in India is between July and December, when the festival and marriage season starts.
The Managing Director of WGC, India, Som Somasundaram.PR told The Economic Times it was likely that the demand in the second half of the year would be normal. He said the WGC expected the annual demand to end up at around 950 tons sold. But on the issue of lowering the import duty on gold, he did not think that the new government would take any short-term measure.