New Delhi: Gold demand fell 20% to around Rs 51,000 crore during April-June quarter as households postponed purchases in the wake of high prices. This is the second straight quarter of falling sales, a rarity in India given that the precious metal is seen as the safest investment option, more so during times of stock market volatility and economic uncertainty.
But high inflation, which has resulted in higher consumption spending, at a time when pay hikes have been modest added to the negative sentiments.
"The fluctuations in the exchange rate and the rise in the gold price to records of around Rs 30,000 per 10 gram in June were compounded by domestic inflation and concerns over a weak monsoon season," the World Gold Council said in a statement. With nearly 60% of the sales in India accounted for by rural areas and small towns, a weak monsoon will cause a further dent in the months ahead.
Customs duty of 4% has also added to the price pressure. Market players said that sales were also hit during the initial part of the quarter as jewellers pulled down shutters to protest the 1% excise duty proposed by Pranab Mukherjee in the Budget, which was later withdrawn.
In volume terms, overall demand fell to 181 tonnes, a 38% decline from 294.5 tonnes during April-June 2011, data released by the World Gold Council, the international agency tracking the sector, showed.
Within this, it was investment demand which faced a bigger dent recording a 51% decline to 56.5 tonnes. Investment demand is measured in terms of sales of coins and medallions. Jewellery that accounts for a much larger share of purchase in India witnessed a 30% fall during the period with demand adding up to around 125 tonnes.
"We had expected that demand would bounce back in May and June, which is the wedding season. But it remained flat," said MMTC general manager N Balaji.
While branded jewellers remained relatively shielded from the seasonality factor, brand owners said growth had fallen as compared to the 2010-11 period. "There was no panic buying this season as there was last year when prices rose consistently. People are looking at gold as more of an inspirational commodity now, hence there is lack of demand on the investment front too," said Geetanjali CEO Sanjeev Agarwal. If volatility in gold prices remains in the festive period, demand will remain subdued, jewellers said.
World Gold Council, which promotes sales of precious metal, however, sought to suggest that all is not lost. "General sentiment is low with India staring at below 6% GDP growth in fiscal year 2012-13. However, it is important to remember that there is still a lot of latent demand for gold and with the upcoming festival and marriage season, we should see an upsurge in demand," said Ajay Mitra, MD for India and West Asia.
COSTLY HEDGE
äOverall demand fell 38% to 181 tonnes in Apr-June 2012 from 294.5 tonnes a year ago
äInvestment demand, measured in terms of sales of coins and medallions, plunged by 51% to 56.5 tonnes in Apr-June 2012
äJewellery demand in India fell 30% to around 125 tonnes
äPoor demand in India and China, which together accounted for 45% of total sales, impacted the global performance  |
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