Industrial action snuffs Indian jewellery demand in Q1, says WGC

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Infograph courtesy - World Gold Council

India’s jewellery market virtually ground to a halt in March as a combination of surging prices and industrial action in protest at government policy made for an extremely challenging quarter, the World Gold Council said in its latest quarterly report.

Quarterly demand of 88.4 tonnes was down 41 percent year-on-year and the lowest quarterly total since Q1 2009, the report said, but WGC believes the demand was postponed rather than lost.

In mid-January, the local gold price breached the key Rs 26,000/10g level, reaching Rs 28,000/10g by 10 February before surging higher still, getting close to Rs 30,000/10g by the end of the quarter, it said.

This sent a strong signal to Indian consumers to hold off on buying gold jewellery until prices stabilized, the report said, adding that as demand dried up the local market quickly moved into a discount to the international price. The discount widened sharply, reaching levels close to US$40/oz

The government’s budget in February, in which the finance ministry announced plans to impose a 1 percent excise duty on jewellery manufacturing, prompted a swift response from the jewellery sector that called for a nationwide strike.

While jewellery stores in the south of India re-opened on 19 March, retailers across vast swathes of the country remained shut for the remainder of the quarter and into April. Given the higher penetration of single store retailers in the North, East and West of India, the impact on sales was more prominent for unorganised players, while branded chain stores were relatively resilient.

The report said the Q1 was postponed, not lost. Most stores re-opened in the second half of April, ahead of the Akshaya Tritiya festival in early May and the start of the wedding season.

This view is also supported by the sharp narrowing of the local discount as manufacturing activity resumed in April.7 The pro-rural budget and expectations for an above-average monsoon should further support rural incomes, which has positive implications for gold demand over the coming quarters.

 

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