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Indian gold demand has been weak in 2012. Improvement is expected in Q4, but annual demand is still likely to be down. Are we seeing a trend?
India’s voracious appetite for gold has long made it the yellow metal’s strongest pillar of support. But earlier this year, some market observers — such as Marcus Grubb, managing director of the World Gold Council (WGC) — suggested that China could become the world’s top gold consumer.
India’s gold demand has been disappointing so far in 2012 and China looks set to become the top market for gold. Though some are optimistic about Indian demand in the fourth quarter (Q4), it is likely that the country’s gold purchases this year will be sharply lower than they were in 2011. That raises the question of whether India is merely adapting to headwinds or is experiencing a decreased appetite for the metal.
For the first half of 2012, India’s gold demand was down about 33 percent. Declines are also expected for the third quarter compared to the same period last year. Despite this disappointing performance, the festive season is now approaching; Dussehra is on October 24 and Dhanteras and Diwali follow in November. Many market participants are expecting to see improvement in Indian gold demand this quarter.
Gold imports may jump to as much as 200 metric tons this quarter, according to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation.
Prithviraj Kothari, president of the Bombay Bullion Association, also projected demand of 200 metric tons during the peak season from September to December.
The WGC and its partners, Reliance Money Infrastructure and India Post, are offering buyers a 7 percent discount on 24-carat gold coins in a range of denominations through December. The trio is undoubtedly hoping that its offer will motivate Indians to buy gold this season.
India’s gold market has faced numerous headwinds this year, including a government agenda to curb its citizens’ appetite for the metal. One means of doing so was applying taxes on gold that drove up prices. Initially many were skeptical about the success of the government’s efforts. But the measures came during a year when the income of the agricultural sector — which is responsible for a significant amount of gold demand — was impacted by disappointing monsoon rains. The nation has also been forced to deal with a very weak rupee.
The value of India’s currency is considered the most severe headwind for gold demand. While there is optimism about Indians’ appetite for gold this quarter, many admit that it will depend on the value of the rupee versus the dollar.
On Monday there was reportedly a surge in demand for the metal. That day, India’s currency strengthened against the greenback.
“India should be a better buyer over the next two weeks from a seasonal perspective,” states an October 18 market comment from UBS, “but this remains highly contingent on the behavior of the rupee gold price.”
Q4 gold demand did not materialize last year as expected, but was instead down about 44 percent. That decline is important when assessing the performance in the Indian market this year.
If gold imports do reach 200 metric tons that will represent a quarter-on-quarter increase, the first climb in six quarters, according to Bloomberg. But Kothari indicated that will amount to a 40 percent slump for the peak season year-on-year. Auspicious periods may be able to boost demand temporarily, but Indian gold demand for 2012 is expected to be down, and that is likely to result in the second consecutive annual decline.
In 2010, India’s appetite for gold totaled 963 metric tons. That appetite was reduced to about 933 metric tons last year. This year, Kothari said that India may not even import over 450 metric tons.