India sees 7% drop in gold demand in Apr-Jun qtr due to record high prices: WGC

New Delhi: Gold demand in India, the world's second-largest consumer, declined by seven per cent to 158.1 tonnes during the April-June quarter of this year in reaction to record high prices in the domestic market, according to the World Gold Council (WGC).

However, gold imports saw a 16 per cent jump to 209 tonnes during Q2 of 2023, from the year-ago period on account of stocking, WGC said in its latest report released on Tuesday.

With the first half of 2023 demand estimated at 271 tonnes, the full-year gold demand could be in the range of 650-750 tonnes in 2023, it added.

"The 7 per cent decline in Q2 gold demand is due to prevailing record high gold prices, which significantly impacted affordability and consumer sentiment," WGC India Regional CEO Somasundaram PR told PTI.

There was a sharp rise in yellow metal prices in a very short span of time to a peak of Rs 64,000 per 10 gram. Also, some demand got shaved off due to the overall tax compliance in the country, he said.

As per the WGC report, the country's gold demand dropped by 7 per cent to 158.1 tonnes in Q2 of this year, from 170.7 tonnes in the year-ago period.

In value terms, India's Q2 gold demand was Rs 82,530 crores, an increase of four per cent from Rs 79,270 crores in the year-ago period.

Out of the total gold demand, jewellery demand declined by eight per cent to 128.6 tonnes during the second quarter of this year, when compared with 140.3 tonnes in the year-ago period.

According to the report, 18k gold jewellery continued on an upward trend, as consumers were attracted by the affordability of these products.

Bar and coins demand also saw a marginal three per cent decline to 29.5 tonnes during Q2 of 2023, as against 30.4 tonnes in the year-ago period, the report said.

"Given the gold price, it would have been reasonable to expect far weaker gold jewellery demand. But arguably the supportive economic backdrop helped, with GDP growth forecast to increase by 6.3 per cent for FY 2023-24.

"A knee jerk reaction to the ban of 2,000 rupee notes during the quarter had a brief but notable impact on gold demand," it said.

Although demand has held up relatively well so far this year, the report said, "we are cautious regarding H2 prospects."

Local prices, although off their record highs, remain elevated. And although the domestic economy remains relatively healthy, there are indications of a slowdown in discretionary spending, with FMCG sales apparently declining during the quarter, it said.

"The success – or otherwise – of the monsoon season will also have a considerable bearing on demand for the remainder of the year," it noted.

According to the report, gold recycling in India witnessed a sharp spike during the quarter, with an increase by 61 per cent to 37.6 tonnes, compared to the previous year.

"Many consumers would have opted to book profits from historic high gold prices." Asked about the impact of curbs imposed last month on import of certain gold items, Somasundaram said it was done to plug loopholes as people were using free trade agreements with Indonesia to get concession gold jewellery.

"This regulation will not impact imports. Anyways, jewellery is not freely importable," he said.

Looking ahead to the rest of the year, Somasundaram said, "We remain cautious about gold demand as it faces uncertainties due to elevated local prices and a slowdown in discretionary spending.

However, the success of the monsoon season could bolster sentiment ahead of Diwali season and throw positive surprises." India's overall gold demand could be in the range of 650-750 tonnes in 2023 if prices continue to hold at the current level, he added.