Monsoon, high prices and fears of an impending economic slowdown caused a steep fall in gold sales in the third quarter of this year, in one of the worst quarterly demand for gold in the country since 2005.
Demand for gold in India for Q3 was 123.9 tonnes worth Rs 41,297 crore, down 32 per cent compared to Rs 50,085 crore for 183.2 tonnes in the corresponding previous year quarter. Total jewellery demand in India for the period also decreased 32 percent (Rs 33,851 crore) at 101.6 tonnes as compared to Q3 2018 demand for 148.8 tonnes worth Rs 40,687 crore.
The value of jewellery demand was down by 17 per cent during the period, said data from World Gold Council, the agency tracking gold sales at wholesale level.
Despite the economic slowdown and fears of job losses, Indians did not see gold as a safe haven for investment. Total Investment demand for the third quarter was only 22.3 tonnes, down 35 per cent as compared to Q3 2018 (34.4 tonnes). Value-wise, the fall in gold Investment demand in third quarter was Rs 7,446 crore, down 21 per cent compared to Rs 9,398 crore in Q32018. Total gold recycled in India in the third quarter was 36.5 tonnes, up by 59 per cent compared to 23 tonnes in Q3 2018.
At the retail level, consumer demand for jewellery was lower by 5.3 percent from 417 tonnes in the previous third quarter year to 395.6 tonnes. Consumer demand for gold as an investment was also down by 5.2 percent from 106 tonnes in the previous year quarter to 100.4 tonnes.
"Gold sales declined mainly due to weak consumer sentiment, high prices, monsoons, absence of any major festivals and intervening inauspicious periods like Pitru-Paksh. The drop this year has been significant, making it one of the lowest third quarters since 2005", said Somasundaram PR, Managing Director, India, World Gold Council.
While wedding-related purchases provided some fillip to sales, overall jewellery demand fell 35 per cent and bars and coins by 22.3 per cent, due to low levels of general consumer confidence following a lot of noise about an economic slowdown. The increase in custom duty in the July budget from 10 percent to 12.5 percent also contributed to the negative sentiment.
The quarter also witnessed sharp rise in the gold price and deep discount in the cash bullion market, impacting both trade and the consumer outlook. Gold prices rose steadily from Rs 35,000 per 10 grams in mid-July to Rs 38,795 by end-August. This Rs 5,000 leap in two months caught consumers completely off-guard, prompting many to delay buying and the domestic gold price reached an all-time historic high of Rs 39,011 per 10 grams in the first week of September.
Prices softened in the following final few weeks of the quarter due to the decrease in the international gold price and strengthening of Indian rupee, said World Gold Council.
The Council said despite the fall, full year gold demand estimate for India will be 700-750 tonnes, more likely at the lower end of the range. This will be a little above the 2016 level - which faced disruptions due to jewellers strikes, the introduction of PAN and demonetisation, said Somasundaram.