Indians may still covet gold but demand dipped this year as the government introduced a series of duty hikes to trim imports and contain CAD.
India may not be the top importer of gold in 2013, making this an eventful year for the much-in-demand yellow metal. Controlling the runaway current account deficit (CAD) was a key concern and the fact that gold is the second-biggest contributor to the import bill was a crucial factor for the government to announce a series of measures to control gold imports.
CAD for the year hit 4.8% in March 2013, prompting the government to curb gold imports. The methods surely yielded results. Demand for gold came down by 32% in the quarter ending September as compared to the same period last year. Jewellery demand for the same time-frame also dipped by 23 percent to 104.7 tonnes and bar and coin demand was down by 48 percent to 43.5 tonnes. The overall demand for gold in India, earlier expected to touch 1,000 tonnes this calendar year, has also been revised downwards by the World Gold Council (WGC). Though it did not put a revised estimate, the industry body believes that imports will be 875-900 tonnes, marginally higher than 865 tonnes that was imported in 2012 (due to high imports in the first half of 2013).
With these revised estimates, China could supersede India as the largest consumer of gold this year, the council has said. The curbs on gold have helped trim the import bill but also led to supply constraints in the market.
Apart from this, the government also introduced the 80:20 rule under which 20 percent of imported gold has to be compulsorily exported. Jewellers say this was unprofitable for them because of the high import duty – as a result imports were curtailed.
Import duty on gold was also hiked three times this year and now stands at 10%.
An offshoot of the curbs were the increase in cases of gold smuggling.
Though the quantum cannot be ascertained, the re-emergence of ten-tola bars (1 tola=11.66 grams) and the increased demand in neighbouring states such as Thailand and Sri Lanka are indicators that smuggling is on the rise.
There has been enormous volatility in gold prices.
On June 28, for instance, gold touched a low of Rs.25,130 for 10gm (in the Mumbai bullion market). It recovered within two months to touch a high of Rs.33, 265/10gm, an increase of 32%.
Internationally, however, gold prices haven’t fluctuated this dramatically. In the domestic market, it was the depreciating rupee that made prices so volatile. When gold prices jumped by 32% in the two months between June 28 and August 28, the rupee depreciated by 18.4%.
When gold prices hit a low in April-June, demand for jewellery jumped 51% and investment demand shot up by 116%. And then, in the second half of the year, gold buying slumped dramatically. Dhanteras, the festival considered auspicious for buying gold, was a dismal period, say jewellers. High inflation and weak consumer sentiment pulled demand down by anywhere between 35-50 percent, failing to record an uptick even during the wedding season. Going ahead, gold prices may continue to be under pressure as fears of early withdrawal of stimulus by Federal Reserve looms large.
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