“In October-December 2017, India’s gold demand was up 2 per cent. Jewellery demand reached the highest for the quarter in our 17-year series. The increase in gold demand was driven by low prices coinciding with Dhanteras, a positive economic condition, and improved consumer sentiment, particularly in rural areas, as the effect of demonetisation wore off,” said Somasundaram P R, managing director, WGC.
Dhanteras is a festival during which people buy gold; in 2017, it was celebrated on October 17. The government had demonetised Rs 1,000 and Rs 500 notes in November 2016, leading to lower demand.
In average rupee terms, gold prices fell 1.2 per cent in 2017, and increased 5.1 per cent in average dollar terms. This reflected the rise of the rupee against the dollar.
“The Budget (presented on February 1) had various positive initiatives for gold, such as the development of a comprehensive policy and the creation of a gold exchange,” said Somasundaram. “This could happen soon, possibly before July,” he added.
He said gold demand was likely to remain between 700 tonnes and 800 tonnes this year, though that would still be lower than the five-year average (810 tonnes).
Somasundaram also said the government’s proposal to impose an inheritance tax was unlikely to work. “If people have more gold than the government’s threshold (250 gm for unmarried women, 500 gm for married women), they will declare it in the names of various family members.”
Also, with the cumulative gold holding with Indian households at 25,000 tonnes, the per capital holding was about 104 gm — much lower than the threshold.
Somasundaram also spoke of the need for a standard gold policy, a delivery standard, and a trade mechanism through a spot gold exchange. “This could boost the gold monetisation scheme,” he said.
In 2017, doré bars — alloys of gold and silver made at mines for transport — contributed 27 per cent of gold imports, the highest ever. In 2016, these imports 230 tonnes.
About 120-125 tonnes of gold came into the country through unofficial channels, said Somasundaram. In 2016, it was 119 tonnes. “A rationalised import duty (currently 10 per cent, along with 3 per cent goods and services tax) would help curb smuggling,” he added.