India’s gold demand dropped 7 per cent in the June quarter to 158 tonnes (171 tonnes in June quarter 2022) as the yellow metal’s prices zoomed to record highs in rupee terms, the World Gold Council said on Tuesday.

“This (demand) decline can be attributed to the prevailing record high rupee gold prices, which significantly impacted affordability and consumer sentiment,” said PR Somasundaram, Regional CEO, India, World Gold Council.

₹2,000 note withdrawal

The high prices in rupee terms increased the value of gold demand by 4 per cent to ₹82,530 crore (₹79,270 crore). Demand for gold jewellery, which forms a bulk of the demand, declined by 8 per cent to 129 tonnes (140 tonnes) as buyers postponed their purchases, hoping for prices to fall.

“There was a brief but notable impact on gold demand following the kneejerk reaction to the ban of ₹2,000-rupee notes during the quarter,” the WGC said in a statement. On May 23, the Reserve Bank of India said it will withdraw the ₹2,000 note from circulation from October 1.

Somasundaram said though there was a brief spurt in demand after the announcement on ₹2,000 note, it settled down immediately reflecting to the sensitivity of Indian consumers to policy changes.

Positive developments

There were, however, two positive developments amidst the demand gloom. In view of the firm prices, buyers preferred to recycle gold than make fresh purchases. Gold recycling jumped 61 per cent during the quarter to 37.6 tonnes (23 tonnes). Gold imports increased 16 per cent to 209 tonnes (181 tonnes) as jewellers replenished their holdings after gold sales in the first half of this year.

However, investment demand fell 3 per cent to 29 tonnes (30 tonnes), but it was up 9 per cent in value at ₹15,410 crore (₹14,140 crore). The decline in demand was in line with the global trend. Global gold demand dropped by 2 per cent to 921 tonnes but overall demand, including investments, increased 7 per cent .

Global gold investment, bar and coin demand increased by 6 per cent year-on-year to 277 tonnes. Gold ETFs outflows were 21 tonnes in the quarter, smaller than the 47 tonnes in the same quarter a year ago. Global jewellery demand, too, was up by 3 per cent on a rebound in Chinese demand and “remarkably” strong consumer buying in Turkey, the WGC said.

Globally, central banks’ gold purchase as part of forex reserves was down 35 per cent to 105 tonnes of gold in the June quarter. In the first half of this year, RBI bought 10 tonnes of gold against 15 tonnes last year.

Cautious H2 outlook

In the April-June quarter, gold prices in the country jumped 12 per cent to ₹52,192 per 10 grams against ₹46,430 a year ago.

While challenges related to high gold prices and inflation persisted, the supportive economic backdrop and consumer adaptability played a significant role in bolstering the market’s resilience, Somasundaram said. “We remain cautious about gold demand in H2 as it faces uncertainties due to elevated local prices and a slowdown in discretionary spending. However, the success of the monsoon season could bolster sentiment ahead of Diwali season and throw positive surprises. With H1 2023 demand at 271t, our estimate for full-year gold demand is in the range of 650-750 tonnes,” the WGC Regional CEO, India, said.

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