India's Gold Demand Hurt As Investors Are Choosing Equities - Jewelers
(Kitco News) - Higher gold prices and tax changes are likely to keep India’s gold demand restrained this year, as investors opt for equities and mutual funds, according to local jewelers.
“What we feel in 2018 is that gold will probably retain a similar business to last year,” ABS Sanjay, the managing director of AVR Swarna Mahal Jewelry in south India, told UAE’s The National. “In the past two to three years the investment has majorly transferred to equities or mutual funds or other investments.”
India is the second largest gold consumer in the world, right behind China. But, its demand has been weak since lawmakers started to introduce major monetary changes, such as the demonetization of all 500 and 1,000 rupee bank notes in 2016.
The most recent new policy was the introduction of a 3% GST tax that came into effect July 1, 2017 and aims to help with traceability of transactions.
The World Gold Council (WGC) estimated that in 2017, India’s gold demand was between 650 tonnes to 750 tonnes, which is a big drop from a strong year like 2013, which saw 974 tonnes.
“Headwinds for demand continue though, following various measures since early 2016 to boost transparency, and therefore we expect full year demand in 2017 to be well below the five-year average,” managing director at World Gold Council India Somasundaram PR said last year.
The new year started out on a slower note, with the wedding season not providing enough of a boost, said Anil Jain, who operates a jewelry store in Mumbai's Zhaveri Bazaar.
One of the biggest differences between now and before the government’s changes is a drop in gold purchases conducted in cash, Sanjay pointed out.
But, Jain added that things are not as bad as in the end of 2016, when demonetization was introduced, but higher gold prices might put additional pressure on already slow demand.
“It was pathetic, pathetic. Post demonetization, we were really in dire straits, although things got a little better after Diwali, but since the prices are rising, again it will be a dampener for the public to come to buy gold,” Jain said.
Another aspect of gold losing its shine in India is people choosing to invest into other mechanisms, such as stocks.
“Traditionally, people used to do a lot of savings in India,” Sanjay noted. “Whenever they used to buy gold, they just used to look at it as savings. But in recent years, because there was no very big growth in the gold price, they started to look at other investments. More organized currency is in the system now.”
Gold has been rising in India because of a worldwide price increase as well as rupee’s weakness against the greenback, which makes importing gold more expensive in India, jewelers said.