As gold prices skyrocket, demand in India will fall to a three-year low

(Commerce Rep) Mumbai, Ta. November 5, 2019, Tuesday

World Gold Council (WGC) has shown that India's gold demand is likely to reach the bottom of three years in 2019 as a result of record price rise in gold prices and decline in rural areas.

India's gold managing director Somsundar PR told the World Gold Council that India's demand for gold in 2019 is likely to drop to 700 tonnes by 8 per cent from the year before, the lowest level since 2016.

In a report, the WGC said that consumption of gold in India fell by a third to 123.9 tonnes in the quarter ended September. The decline in the consumption of gold in the world's second largest gold consumer country could cause global gold prices to break.

Global gold prices have risen 17 percent so far in 2019, but falling gold imports could help reduce India's trade deficit. Demand for gold with high prices has been impacted by poor rural sentiment. Along with this, excessive rainfall is also a major cause of damage to agricultural crops.

Rural areas account for 66% of India's total gold demand. India has received the highest rainfall of 25 years in the June-September season. Rainfall is estimated to continue to damage cotton, soybeans and beans crops in October.

In September, local gold futures prices reached a high of Rs 39,885 (per 10 grams). Which is an increase of 22% in 2019 so far. Demand for July-September has dropped due to the rise in domestic gold prices and the rise in import duty. In the first week of July, import duty on gold was increased from 10 per cent to 12.5 per cent.

Gold demand is likely to be lower than last year's 236.5 tonnes in the crucial quarter of December 31, Somsundaram said. But the decline is not as sharp as the July-September quarter, he said.

Typically, the demand for gold increases due to the festive season, including the wedding season and Diwali, in the October to December quarter. Many Indians sell gold jewelry in gold prices, says a WGC official.

Global gold demand increased to 1,107.9 tonnes in the third quarter of 2019, an increase of 3% over the corresponding period of the previous year, according to the World Gold Council's latest gold demand trend report.

Demand elsewhere increases due to the rise in exchange traded funds (ETFs). Even though central banking was good, the record for the third quarter of 2018 was significantly lower than the purchase. However, the demand for jewelery was still limited due to strong gold prices.

Gold prices remained high for more than one year, as well as the softening of the global economy. Holdings in gold-based ETFs reached new heights of 2,855 tonnes in the third quarter. Holdings increased by 258.2 tonnes during the quarter, the highest quarterly inflow since the first quarter of 2016.