India gold demand outlook remains cautious: WGC

Image: Sivaram V / Reuters

The demand for gold in India will continue to face headwinds and the outlook remains “cautious”, according to a latest market update from the World Gold Council (WGC).
 
“After a challenging 2016, India’s gold market faces headwinds. As well as given the lingering effect of the policies implemented last year, the industry has more to contend with in 2017. On balance, while demand is likely to improve, our view for 2017 is cautious: We expect consumers to buy between 650 and 750 tonnes,” the WGC report said.

But after falling so sharply last year, demand is unlikely to fall further, the report said.

Gold prices in India, which hit a recent peak of Rs 29,710 per 10 gm levels on February 27, are expected to remain range-bound in coming weeks. “We may not see an immediate peak, but prices could climb to the near Rs 30,000 per 10 gm levels in a month or two,” says Anand James, chief market strategist with Geojit Financial Services.

The report also expressed concern over the government’s move to penalise/tax cash transactions above the value of Rs 300,000 from April 1, 2017, onwards. “This will have the greatest impact in rural India, where people do not necessarily have access to cheques and electronic payments. It could curb gold purchases, it could just encourage gold shoppers to buy smaller amounts of gold spread over more transactions, or it could push a large part of demand underground and encourage growth in the black market,” the report said.

But over the medium term, demand for gold could move up, to between 850 to 950 tonnes (these levels were last seen between 2013 and 2015), led by higher economic growth and a boost to transparency.

Demand for gold in India declined by 21 percent to 675.53 tonnes for the whole of 2016, according to WGC data.

The industry was hit by a string of factors last year – a 42-day gold jewellers’ strike triggered by a 1 percent excise duty on jewellery manufacturing , a government norm seeking PAN-card disclosure for financial transactions and purchases above Rs 200,000 and the demonetisation move in November.

The WGC report said demonetisation would result in consumers buying gold through digital modes of payments and not cash transactions, which will assist the organised trade and large jewellery retailers.