Demand for gold, imports nosedive to 3-year low

This is good news for the central government at a time when crude oil prices are rising.

This September quarter is seen as one of the worst for jewellers in many years, as an increase in import duty, followed by sharp increase in prices, have pushed the cost of gold to all-time highs.

Gold demand, import, and import bills have declined sharply, as a result.

However, this is good news for the central government at a time when crude oil prices are rising.

The import of gold in August stood at $ 1.36 billion (Rs 9,600 crore) - a 36-month low.

It was also, for the first five months of this financial year, a three-year low at $ 14.5 billion.

“A sharp 20 per cent rise in price and the off-season are key reasons for muted consumer demand. Imports have been consistently higher than demand since the first quarter of FY17 (barring Q4 of FY18), aggregating to 200 tonnes.

"In times like this, destocking is natural; so, imports are lower,” observes Somasundaram P R, managing director at the India arm of the World Gold Council, the mining industry body.

Worried bullion traders and jewellers say the September quarter was the worst for demand in this decade.

The import duty was raised from 10 per cent to 12.5 per cent in the Union Budget presented on July 5.

After which, demand and import both fell.

In the first six months (January to June) of this calendar year, India imported 427.8 tonnes of gold, a monthly average of 71.3 tonnes.

However, in July, only 29 tonnes were imported; August import is estimated at 27 tonnes and the September trend is unlikely to be any better, with the ongoing ‘pitrupaksh’ period.

Analysts tracking gold import say of the 56 tonnes imported in July and August, hardly 20 tonnes was for the domestic market; the rest was for re-export.

Or, of $ 3.08 billion in gold import during July and August, only $ 1.2 billion was for the domestic market.

Analysts think demand has fallen to a third of the usual figure in the September quarter.

The WGC says the traditional average has been 175 tonnes; so, the demand could be 65-70 tonnes.

Of this, say analysts, investment demand was negligible.

With the price at Rs 40,000 per 10g, investors of physical gold have to also pay three per cent in goods and services tax (GST), apart from making charges.

Whatever investment demand was seen went for sovereign gold bonds, where there is no GST or making charge, and investors can earn annual interest of 2.5 per cent.

According to Reserve Bank data, there have been three such bond issues after the Budget, in July (Rs 185 crore of bonds sold), August (Rs 359 crore) and September (Rs 244 crore).

That Rs 788 crore of bonds translates in gold terms to 2.19 tonnes.

This investment in sovereign gold bonds during the past two months was the highest after July 2017, when as much as Rs 653 crore worth of bonds (2.35 tonnes) were sold.

Photograph: Heinz-Peter Bader/Reuters