Wedding, festivals, monsoon to drive demand for gold in Q2: WGC

Mumbai: A rising rupee and fall in local gold prices drove demand for gold in India in first quarter of 2019. According to the World Gold Council's (WGC) latest Gold Demand Trends report, the demand for the yellow metal is likely to increase more during the April-June period due to by factors such as traditional wedding season buying, the Akshaya Tritiya festival and rising crop prices.

The India Meteorological Department (IMD) forecast that the monsoon will be normal this year also augurs well for the rural economy and gold, according to the WGC. It estimates India’s gold demand to be in the range of 750 to 850 tonnes in 2019.

According to the IMD's prediction, rainfall activity is likely to be 96% of the 50-year average. The IMD expects weak El Niño conditions to prevail during the later part of the season but with reduced intensity. El Niño is usually unfavourable for rainfall in India. The IMD’s June forecast will, however, be more critical. Private weather forecaster Skymet expects “below normal" monsoon, citing El Niño risks.

The demand for gold in India was at 159 tonnes during January-March, up 5%, against the Q1 demand of 151.5 tonnes in 2018. India’s Q1 2019 gold demand value was ₹47,010 crore, a 13% rise from ₹41,680 crore a year ago.

"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 uplifted global demand and boosted retail sentiment," WGC managing director Somasundaram PR said.

Global gold demand grew to 1,053.3 tonnes in the first quarter of 2019, up 7% against the same period last year. This year-on-year increase was largely due to continued growth in central bank buying, as well as growth in gold-backed exchange-traded funds (ETFs).

“The beginning of 2019 saw a sharp recovery in investor sentiment in both 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," said Alistair Hewitt, head, market intelligence, WCG.

Back home, total jewellery demand in India for Q1 2019 was up 5% at 125.4 tonnes, against 119.2 tonnes in Q1 2018. The value of jewellery demand was ₹37,070 crore, a 13% increase from Q1 2018 ( ₹32,790 crore). Total investment demand for Q1 2019 was up 4% at 33.6 tonnes, against Q1 2018 (32.3 tonnes).

In value terms, gold investment demand was ₹9,940 crore, a 12% rise from Q1 2018 ( ₹8,890 crore). Total gold recycled in India in Q1 2019 was 16.1 tonnes, compared with 14.1 tonnes in Q1 2018, a 14% rise. For 2018, full-year gold demand expectations for India is in the range of 750 to 850 tonnes.

“The increase in auspicious wedding days in Q1 2019 – three times as many as those in the first quarter in 2018 - was also crucial to the rise in gold demand. While still a nascent trend, digital platforms for buying gold continue to become popular, as internet investment gold providers forge effective market partnerships with UPI platforms and offer investors the option of purchasing pure gold for as little as ₹1 on their smartphone," Somasundaram added.

The WGC expects there could be accelerated growth in demand for gold as regulatory framework evolves and jewellers’ tie-ups grow, enabling the seamless transfer of digital gold holdings to acquire jewellery.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.