DNA Money Edit: Will gold glitter this year?

The gold market in India is eagerly awaiting policy initiatives by the government. The finance minister has promised various positive initiatives for gold including a comprehensive policy and creation of a gold exchange. As the policy measures unfold, the World Gold Council (WGC) is optimistic that demand for 2018 will stabilise at 700-800 tonne, up from 727 tonne last year.

However, lower demand in India, the world’s second-biggest gold consumer, could rein in global prices in 2018. As per a recent WGC report, gold demand will lag because of a higher goods and services tax on bullion purchases imposed in 2017 – which was raised to 3% from 1.2% -- and measures to track gold purchases.

The government has also made it mandatory for customers to disclose Permanent Account Number for high-value gold purchases. Surely, the government moves have disrupted the business of the small jewellers that account for nearly two-third of India’s total sales. It is interesting to note that 2017 saw an increase in demand primarily driven by a number of events, including lower gold prices coinciding with Dhanteras and improved sentiment. Will the demand in India remain below its 10-year average for a third year in 2018? Or will government measures push up demand? The market is optimistic.