India's gold demand estimated to fall 24% in 2016

The Dollar Business Bureau

India's vast gold market seems to be losing its sheen this year as the domestic demand could fall as much as 24% in 2016 due to higher prices and increased smuggling of the metal.

The World Gold Council (WGC) said the lower demand of gold in India, the world’s second largest gold consumer market, could hurt global spot prices, which have been on a constant rise this year, but will help the economy reduce its trade deficit.

Gold continues to be one of the country’s biggest expenses on its import bill. India's domestic demand during the first three quarters of 2016 nosedived 29% from a year ago to 441.2 tonnes as it was hit by price rises and the government’s restrictive measures such as the mandatory disclose of tax code for high-value jewellery purchases.

The 2016 demand is estimated to fall between 650 to 750 tonnes, which is the lowest since 2009 and considerably lesser than last year's 858.1 tonnes. 

The government’s initiative to improve transparency has boosted the smuggling of gold, which could rise up to 160 tonnes in 2016, from 100 to 120 tonnes in 2015. 

Smuggling has also gone up over the last few years, and they were offering the metal at heavy discount during the third quarter, forcing many refiners to scale down operations.  

The imports of dore, a semi-pure alloy made by miners, also dropped 84% from a year ago to 11.1 tonnes during the third quarter. 

The third quarter of a fiscal typically accounts for almost a third of India's gold sales owing to the maximum demand during the wedding season and festivals like Dhanteras and Diwali.