Global gold prices are currently ruling in their lowest in a year. Still, the demand for the yellow metal in the country is dissipating. At least, the numbers say so. The retail price of gold has come down by over 3.5 per cent in a month’s time. Gold (22 carat) that sold at `30,676 per 10 grams a month back was priced lower at `29,584 August 8 – a fall of over 3.5 per cent. When extrapolated, this will work out to a drop of 40 per cent per annum. According to a World Gold Council (WGC) report, India’s gold demand declined by eight per cent at 187.2 tonnes during April-June quarter this fiscal compared to second quarter of last year when the demand stood at 202.6 tonnes. In terms of value, the demand worked out to `52,692 crore, a tad low from `52,750 crore during the second quarter of 2017. Jewellery sales also saw a dip at 147.9 tonnes compared to 161 tonnes in the same period last year – a drop of eight per cent. In terms of investment demand also there was a five per cent drop at 39.3 tonnes compared to 41.6 tonnes in the corresponding period last year. Again, in terms of value, it worked out to `11,061 crore from `10,825 crore — up by a miniscule 2 per cent. A spike in offtake was accounted for by the implementation of the Goods and Services Tax (GST). Conversely, there was an eight per cent rise in the quantity of the total gold that was recycled in India.
The above numbers could show a downward growth in the demand for the yellow metal in India – the largest consumer of gold globally. What could be the reasons for this sudden disfavor of people towards the valued metal? The Indian rupee has taken a heavy beating vis-à-vis the US dollar leading to a flight of the greenbacks. The INR has been ruling over 68 for over a month now. With the rise in the prices of crude in the international market, India now has to shell out additional dollars to buy the same quantity of oil. This has led to a spike in our import bills. The depreciation of rupee vis-à-vis dollar has hit gold, as the latter has lost its status as a safe haven for investments. Investors betting on a stronger US economy and higher interest rates have sought out the dollar. The US and China have imposed import tariffs on each other, fraying nerves on the global financial markets. The trade tensions between the two largest economies and the imposition of sanctions by the US on Iran earlier this week would further strain the rupee-dollar equilibrium. The US sanctions on Iran will hit India hard as the oil deal with Iran had involved a lot of flexibilities. Investment demand for gold will also remain under pressure as a rise in interest rates by Indian banks makes bank deposits attractive for some investors. The Reserve Bank of India raised interest rates for its second straight meeting last week. The sustained rally in the equities will also suck in money that would have otherwise headed towards gold as an investment option.
Having said that, a good monsoon coupled with a steep rise in the support price for foodgrains announced by the Centre, not to forget the likely farm loan waivers by state governments before the general elections early next year may support gold in the second half of this financial year. A good rain may lift the sentiments in rural areas, as two-thirds of demand for gold in the country comes from rural areas where jewellery is still a traditional store of wealth.
Golden disfavour
