Indian Jewellers Banking on Normal Monsoon

Even after resorting to strike for 42 days, Indian jewelers who could not force the government to rollback 1% excise duty levied on gold jewellery are now eyeing on the monsoon beginning from first week of June. After two consecutive failed seasons, the monsoon in India is expected to be normal this year, according to weather bureau forecast.

The Indian jewellery demand remained on the headlines of media during 1st quarter of 2016 because of India’s budget proposal of levying 1% excise duty on jewellery manufacturing that induced a strong opposition by jewellers. As a result, demand for gold jewellery in India was unsurprisingly weak. Quarterly demand of 88.4 tons came down to 41% year-on-year and the lowest quarterly total since Q1 2009, according to figures declared by the World Gold Council (WGC).

“However, we assume the gold demand would pick up on the back of pro-rural budget and expectations for an above-average monsoon should further that should support rural incomes. India’s gold demand may increase up to 10% in 2016, even after falling 39% in the Q1, as good monsoon rainfall and a sustained rally in gold prices boost buying,” said Mr. Somasundaram PR, MD of WGC India Operations while declaring the results in Mumbai.

The WGC expects India’s gold demand in 2016 would remain between 850 and 950 tons, compared with 864.3 tons last year. Two-thirds of India’s gold demand comes from villages, where jewellery is traditionally used for investment. Rural demand has gone down during past few months after the first back-to-back drought in nearly three decades narrowed farmers’ earnings. In 2016, however, India is likely to benefit from surplus rainfall during the June-September monsoon season.

Gold prices in India have risen 18% so far in 2016, while equity markets in the country have fallen 1% as measured by the Nifty index. In China, the gold demand dropped by 12% in Q1 to 241.3 tons. Jewellery demand in China fell by 17% due to a slowdown in economy, but investment demand went up by 5% as a weakening currency activated demand for gold bars and coins, the WGC report says.

Mr. Somasundaram also advocated a proper marketing strategy for India Gold Coins. This would propel the right kind of demand and would resolve the problem of purity and melting loss while recycling gold. The total recycled gold in India in 2015 was 80.2 tons. Besides, the launching of the Gold Coins would encourage temples to deposit their gold in banks, as devotees may prefer gold-coin offerings instead of jewellery.

On the other hand, the global gold demand during the quarter was pegged at 1,290 tons which indicates an increase of 21% as compared to the year-earlier period. Incidentally, the aggregate demand in the three-month period between January and March made it the second-largest quarter on record. The rise in demand was driven by huge inflows into Exchange-Traded Funds (ETFs), fueled by investor concerns regarding economic fragility and an uncertain financial landscape, says the WGC report.

“The total inflow into ETFs during the period was 364 tons – the highest quarterly flow since the first quarter of 2009. In the corresponding quarter of 2015, ETF inflow was pegged at 26 tons.

Global demand for jewellery was down 19% as higher prices along with industrial action in India and a softening Chinese economy led to many consumers delaying making purchases. But we believe demand from Q1 is postponed rather than lost,” said Mr. Somasundaram.

Posted by Suresh Chotai