India’s Thirst for Gold to Normalise in 2018

Olivier and Mann - India’s Thirst for Gold to Normalise in 2018

Olivier and Mann – Gold demand in India is expected to normalise in 2018, setting back a projected return from the country’s low seen in 2010, as the banknote withdrawal reduced investments in the world’s biggest spending nation after China, said the World Gold Council.

2017 offers a lot of unpredictability, with Modi’s shock scheme to demonetise two of India’s biggest denomination notes dampening demand and more doubts are coming from planned standardisation of taxes for goods, services and new quality benchmarks for jewellery.

While the demonetization of the Indian currency affected the demand for jewellery in the short-term, the country’s consumption is anticipated to be around 850 – 950 tonnes by the year 2020. The WGC reduced the country’s consumption estimate twice in 2016 to the lowest level since 2009.

The WGC’s projections of a rebound in demand in 2017, announced last November corresponded with Prime Minister Modi’s directive to demonetise the 500 and 1,000 rupees notes. Modi’s objective was to flush out India’s hidden financial stashes and to promote clarity for India’s financial structure.

India’s demand for gold in 2015 was slightly more than 858 tonnes, said the WGC.

Increasing incomes and saving rates that have remained constant should boost spending in different types of investments including gold. However, any constriction in gold-related programs, like the recent imposition of regulation and the formalisation of the gold industry will jeopardise and suppress the demand for gold in the short to medium term.

The Indian premier’s currency swap scheme would also affect gold re-processing, which is almost entirely cash-based, thereby limiting the supply to small-scale refiners who are already under pressure.

Those involved in small scale refining will experience a period of consolidation as the importation of gold seems to be slowing following the increases seen in previous years.