India’s inbound gold purchases drop 51% in May

NEW DELHI (Scrap Monster): According to sources familiar with provisional Finance Ministry data, the Indian gold imports have tumbled for fourth straight month in May this year. The gold imports by the country during the month are believed to have dropped sharply by 51% year-on-year to 31 metric tonnes in May. However, when matched with the April ’16 imports of 22 tonnes, the monthly imports in May have climbed higher by over 40%. It must be noted that the official Ministry data is yet to be released.

Gold Demand

The gold demand in the country has remained muted over the past several months. The jewellers’ strike in protest against 1% excise tax on gold ornaments had affected sales during the entire month of March and part of April. The closures had also boosted gold inventory levels, thus leading to lesser imports. The sales remained lackluster during May, on account of rise in domestic gold prices in line with global price gains. Incidentally, domestic gold prices have rallied almost 15% since the start of the year. According to jewellers, many customers are seen postponing their gold purchase decision, in anticipation of drop in gold prices.

Due to poor market demand, gold refiner MMTC-PAMP had halted refining of gold in February. The Indian gold refiner had been redirecting material back to Switzerland. The company further stated that it will review the decision, after analyzing market conditions. The demand is expected to remain subdued during the months of June and July and is expected to pick up only in August with the beginning of festival season which will last till October. The upcoming monsoon season could also bring some cheer to the sector as better rains are expected to boost rural income, which in turn may lead to higher gold purchases. As per rough estimates, rural population accounts for nearly 60% of the total domestic gold consumption in the country.

Gold ETF Demand

Meantime, demand for gold ETFs has also been not robust, especially because of the relatively better performance of alternative assets like equities and debt. The domestic gold prices which stood below Rs 25,000 per 10 grams in December last year have now advanced to Rs 29,000-Rs 30,000. The volatility in this higher range prevents people from making fresh purchases of physical gold and gold ETFs. However, buying interest is likely to return to them as gold stabilizes in that range.

Shaky gold prices

Price of gold in international market dropped by 0.14% to $1,243 an ounce in Singapore Tuesday. The weakness in global prices was reflected in domestic market with gold prices falling for the second straight day. The price of gold of 99.9% purity in national capital has dropped by Rs 10 to Rs 29,030 per 10 grams. The prices had dropped by Rs 185 per 10 grams on Monday. The demand for gold from jewellers and retail customers remained extremely weak during the day. According to traders, the ongoing weak demand situation is feared to keep gold under further pressure in the near-term.