Chennai: The introduction of import taxes in India and high gold prices saw global demand for the metal fall by 5% to 1,097.6 tonnes in the first quarter, according to the World Gold Council’s Gold Demand Trends report.
The slump in the rupee also hit demand in India, the second largest consumer of gold in the first quarter of 2012, from the year earlier. Demand for gold dropped 29% to 207.6 tonnes. The government withdrew the tax on jewellery in May.
India and China are the two largest importer of gold and WGC had forecast earlier that China would surpass India to become the largest consumer of gold in 2012. China’s investment and jewellery demand rose 10% to 255.2 tonnes in the quarter.
The first quarter saw policy paralysis and confusion that saw inventory low at banks and 23 importing institutions, said Ajay Mitra, managing director, India and Middle East, World Gold Council, at a press briefing in Chennai.
Demand for the metal has been on a decline since August 2011 amid economic uncertainty, he said.
Though there has been a surge in gold exchange-traded funds (ETFs), demand for gold as an investment -- which would include buying of gold coins and bars -- fell 46% to 55.6 tonnes in the first quarter.
Ajay Mitra of the World Gold Council talks about the first quarter trends in gold and the outlook for its demand in India
Demand for jewellery was at 152 tonnes, down 19%. The average price of the yellow metal jumped 35% to Rs27,287 per 10 grams in the first quarter.
Demand for gold is price inelastic in India, Mitra said. In 2007, India imported about 700 tonnes of gold when the average price for 10 grams was Rs9,500. It now imports close to 950 tonnes of gold.
“We will continue to see importers learning to manage their inventory effectively but they will be taking a cautious approach and the next three quarters are going to be a difficult time,” he said.