Saturday, May 6, 2017

Indian jewelry demand jumped 16% to 92.3 tons from last year’s exceptionally low level

In November 2016, the Indian government implemented a surprise demonetization policy that removed Rs15.44 trillion or 86 percent of the currency in circulation from India’s economy. This had an immediate devastating impact on the whole Indian economy, including the gold jewelry sector. It was the culmination of an extremely challenging year for India’s gold jewelry industry that included strikes, even more government regulations and high gold prices. All of this led to a seven-year low in gold jewelry demand in India in 2016.

Against this backdrop a 16% year-over-year increase in gold jewelry demand in India in the first quarter of 2017, as reported by the World Gold Council, isn’t as strong as it might normally seem. India’s importance in the gold jewelry marketplace can’t be underestimated. China and India accounted for more than half (55.8%) of global gold jewelry demand in the first quarter.

India’s surge in gold jewelry demand in the first quarter was enough to fuel a year-over-year 1% increase in global gold jewelry demand in the first quarter to 480.9 tons, according to WGC’s Gold Demand Trends report for the first quarter of 2017. However, when looking closer at this soft growth, it shows that global gold jewelry demand remains weak due to a 9% rise in gold prices from the end of December till the end of March and a myriad of regional geopolitical and economic issues that are causing uncertainty throughout the world.

“Gold jewelry demand was broadly steady, but remains weak in the longer term context,” the WGC said in its report. “Demand was 18% below the 587.7-ton five-year quarterly average.”


As mentioned, Indian jewelry demand jumped 16% to 92.3 tons from last year’s exceptionally low level. The WGC emphasized that despite the high quarterly gain gold jewelry demand remains weak, primarily due to the high cost of the precious metal. The good news is that “by the end of March, 85% of the value of currency removed from circulation under demonetization had been returned,” the WGC said in its report.

The WGC said the outlook in gold jewelry demand is “robust” with one caveat. “The market is wary of the forthcoming decision on GST (Goods and Services Tax— a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, with the exception of Jammu and Kashmir) and this will likely weigh on demand until the government’s final decision, due for implementation in early July.”


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