ndia retained its top position in global gold consumption for the second consecutive year in 2015, fuelled by record high jewellery consumption at 703 tonnes. According to the latest GFMS Gold Survey 2015 by Thomson Reuters, India’s aggregate jewellery and investment demand in 2015 gained six per cent to 890 tonnes, making it the second best year of the past four years.
“This relatively small nominal rise in demand, despite the annual average price declining by six per cent, can be attributed to the poor monsoon, as the rainfall dropped by 14 per cent below the long-term average, leading to drought and heavy crop losses in some of the major gold consuming regions in the western and northern parts of India,” said the report.
Demand had also been affected by a reduction in rural consumption and a strain in consumption expenditure at the middle and lower income class due to an increase in household debt.
Further, the drought in some regions of the country saw marginal farmers become net sellers of jewellery during the quarter, a factor leading to an 11 per cent increase in scrap volumes.
“Additionally the floods in Chennai and neighbouring districts and in Puducherry placed a dark cloud over the festive season post-Diwali. In these markets, footfalls have been low and those who are heading out have been forced to consider other household necessities over jewellery,” said the report.
As per the survey, price remained a key driver in lifting the sales with retail customers being attracted this season by the deep discounts on jewellery-making charges. The pull-based strategy helped drive sales to the highest since the third quarter of 2008, also leading to a rise by 14 per cent to 203.7 tonnes.
From early November onwards, the rise in foot traffic to stores led to increased sales, with retail activity gathering steam on November 6 following Dhanteras, Diwali and Navaratri-led demand. Interestingly, the pickup in consumption volumes coincided with the price holding below Rs 26,000 per 10 grams of gold.
According to the study, there will be a further growth in India’s gold consumption in 2016 primarily on account of two reasons: the impact of a depreciating rupee against the dollar and secondly, the shift in future price expectations. Consumers are likely to accept that the gold price in rupee terms has seen its bottom, and is likely to see an appreciating price trend, said the report. It, however, said the gold demand in the first quarter of 2016 is likely to be tepid in the first half with expectations building for a possible decline in customs duty during the February budget speech.
On the global front, the study expects gold prices to register a gradual recovery in 2016, particularly in the second half, driven by improving fundamentals, as it expects to see a rebound in pent-up demand from Asia and a further contraction in global mine production.
“We currently forecast global mine output to shrink in 2016, marking the first annual decline since 2008 and the largest in percentage terms since 2004… once it becomes clear that the gold price is on the road to recovery, we are likely to see a rebound in investor interest from key Asian markets, particularly if concerns about the emerging market slowdown and weakening currencies persist,” it saids.
