Demand from India is weak, but bullion ETF demand solid
Physical demand in India has been weak for a couple of years now due to import restrictions, taxation, and currency changes. We have been expecting demand to return to normal. However, in February, Bloomberg reported weak Indian imports which suggests the gold market in India continues to struggle. While we wait for favorable developments from India, the positive trend in prices has been driven by investment demand for gold bullion exchange traded products (ETPs). Global bullion ETPs have seen steady inflows since early 2017 and holdings have now reached levels last seen in 2013.
Demand expected to remain subdued in 2018
According to the WGC (World Gold Council), though gold (SGOL) demand in India increased 9% in 2017 to 727 tons, it was much less than the average five-year demand of 810 tons. The subdued demand was mainly due to a high import duty of 10% and uncertainty over the impact of 3% GST on gold ornaments. While average gold prices in India decreased 1% in 2017, they were up 5% in dollar terms to $1,257 per ounce as the Indian rupee appreciated 6% against the dollar in 2017.
Data from precious metals consultancy firm GFMS showed that India’s gold (GLD)(IAU) imports declined more than 50% YoY to 52.5 tons in March 2018 as local prices rallied to a 16-month high and government restrictions led to subdued demand. WGC expects India’s gold demand to range between 700 and 800 tons in 2018, well below the ten-year average of 840 tons.