Home / Markets / Commodities /  Normal monsoon, festive sales to push gold demand up: WGC

Mumbai: A strong rupee and falling domestic gold prices drove demand in India in the quarter ended 31 March. Demand for the yellow metal is likely to increase further between April and June because of the wedding season, Akshaya Tritiya festival and higher crop prices, according to World Gold Council (WGC)’s latest Gold Demand Trends report.

The weather department has forecast that India is likely to have a “near normal" monsoon this year, which augurs well for the rural economy and for gold demand, said WGC. It estimates domestic gold demand to be in the range of 750-850 tonnes in 2019.

The India Meteorological Department (IMD) said rainfall will be around 96% of the 50-year average, as it expects weak El Niño conditions during the later part of the season. El Niño is usually unfavourable for rainfall in India. IMD’s June forecast will, however, be more critical. Private weather forecaster Skymet, however, expects “below normal" monsoon, citing El Niño risks.

WGC said that gold demand in India was at 159 tonnes in the three months ended March, an increase of 5% from the 151.5 tonnes recorded in the year earlier. March quarter gold demand was valued at 47,010 crore, a rise of 13% compared to the 41,680 crore in the year-ago period.

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“The strengthening of the rupee and the fall in local gold prices towards the later part of the quarter triggered a rise in India’s gold demand by 5% in Q1 2019 to 159 tonnes. Growth of 5% in Indian jewellery demand to 125.4 tonnes lifted global demand and boosted retail sentiment," said Somasundaram P.R., managing director, India, WGC.

Meanwhile, global gold demand grew 7% to 1,053.3 tonnes in the first quarter of 2019, compared to the corresponding period of last year. The increase was largely due to continued growth in central bank buying, besides demand from gold-backed exchange-traded funds (ETFs).

Central banks bought 145.5 tonnes of gold in Q1, up 68% on the same period in 2018 and representing the strongest start to a year since 2013.

ETFs and similar products added 40.3 tonnes in Q1, up 49% on last year. Funds listed in the US and Europe benefitted from the largest inflows, although the former were more erratic while the latter were underpinned by continued geopolitical instability.

Bar and coin investment softened slightly, down 1% to 257.8 tonnes. Gold used in applications such as electronics, wireless and LED lighting fell 3% to 79.3 tonnes.

“The beginning of 2019 saw a sharp recovery in investor sentiment in both the equity and debt markets, but appetite for gold remained solid. In Q1, central banks continued to increase their holdings of gold, while ETFs also saw an increase in inflows compared with the first quarter of 2018," Alistair Hewitt, head of market intelligence, WGC.

Total jewellery demand in India for March quarter was up by 5% at 125.4 tonnes, as compared to 119.2 tonnes in the year earlier. The value of jewellery sold was 37,070 crore, rising 13% from 32,790 crore in the year earlier. Total investment demand for Q1 2019 rose by 4% at 33.6 tonnes from 32.3 tonnes.

In value terms, gold investment demand was at 9,940 crore in the March quarter, a rise of 12% from 8,890 crore. Total gold recycled in India was 16.1 tonnes, a 14% increase from 14.1 tonnes in the year earlier.

“The increase in auspicious wedding days in Q1 2019—three times as many as those in the first quarter of 2018—was also crucial for the rise in gold demand. While it is yet a nascent trend, digital platforms for buying gold continue to become popular, as internet investment gold providers forge effective market partnerships with Unified Payments Interface platforms and offer investors the option of purchasing pure gold for as little as one rupee on their smartphone," Somasundaram added.

WGC expects demand growth for digital gold to accelerate as the regulatory framework evolves, and jewellers tie up with platforms to enable seamless selling and buying of gold ornament.

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