Gold demand surges 71% in Q2 despite import curbs

India's demand for gold jumped 71 per cent in the April-June quarter to 310 tonnes compared to a year ago, the highest level in the last decade despite the government's recent measures to curb the demand, according to the World Gold Council (WGC) quarterly report yesterday.

Global consumer demand including jewellery, bar and coin investment increased 53 per cent to 1,083 tonnes in the quarter helped by recent falls in gold prices and significant demand from India and China, the world's largest gold consumers.

Jewellery demand was up 37 per cent at 576 tonnes, the highest in five years, while bar and coin investment rose by 78 per cent to a record 508 tonnes.

However, overall demand for the yellow metal including that of exchange traded funds (ETFs) and central banks fell by 12 per cent to 856 tonnes during the quarter. ETF outflows were 402 tonnes while central banks bought 71 tonnes in Q2, 57 per cent less than the 165 tonnes purchased last year.

Chinese demand growth was a whopping 87 per cent during the quarter, totalling 276 tonnes compared to the same quarter a year ago.

WGC managing director Marcus Grubb said, ''The second quarter continued the trend that we saw in the first, of a rebalancing in the market, as gold coming onto the market from ETF sales met with a wave of demand for bars and coins, as well as jewellery.''

''This surge in bar and coin investment was a common theme in key markets around the world, and has been particularly prominent in the world's biggest gold markets, India and China,'' he added.

Gold price averaged $1,415 an ounce, down 12 per cent compared to the same period last year. In value terms, the demand was 23 per cent lower at $39 billion during the quarter.

India's jewellery demand was up 51 per cent at 188 tonnes, while gold bars and coins jumped 116 per cent to a record 122 tonnes.

It is expected that the government's policies to curb gold imports to rein in the current account deficit would reduce the demand for the metal in the near future.

''We see a notable dampening of Indian demand in the coming months, more than would normally be expected during the usual Q3 slowdown, as the market digests import regulation changes. Indications for the fourth quarter so far remain positive,'' WGC said.

Earlier this week, the government raised import duty on gold to 10 per cent, the third increase since the beginning of the year, and banned import of coins and medallions, besides tightening other import norms. (See: RBI clarifies on gold import curbs)

WGC considers that the government's measures would create further confusion and exaggerate the normal lull in the Indian demand in the third quarter, ahead of the festival and wedding season in the fourth quarter.

 ''A good monsoon season so far also bodes well for demand later in the year, with the assumption that the market will, by then, have had time to digest and acclimatise to the recent restrictions imposed by the Reserve Bank of India,'' the report said.

WGC forecasts gold demand in India and China between 900 and 1000 tonnes in 2013, with China possibility taking the lead on the back of its pro-gold policies in recent years.

Last year, India consumed 864 tonnes of gold while the Chinese consumption was 832 tonnes.

The two nations account for about 60 per cent of the global jewellery market and over 50 per cent of total bar and coin demand.