Salespersons wait for customers at a gold jewelry showroom in Chandigarh, India, November 9, 2016. REUTERS/Ajay Verma/File Photo
NEW DELHI: The cash crunch following the withdrawal of high-value notes by the Indian government contributed to a sharp fall in gold demand in the world’s second biggest consumer of the yellow metal last year.
Gold demand dropped 21% to 675.5 tonnes last year from 857.2 tonnes the previous year due to demonetisation and increased scrutiny of large jewellery deals in cash, the World Gold Council (WGC) said Friday.
It said Indian demand faced a raft of challenges throughout the year, including regulatory changes, culminating in the surprise demonetisation policy, which severely hampered demand in both the jewellery and retail investment sectors.
“In spite of resilient consumer demand in the fourth quarter of 2016, the two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21% and 7%, respectively,” the WGC said in a statement.
Jewellery demand in 2016 was down by 22.4% to 514 tonnes compared with 662.3 tonnes in 2015.
Jewellers in many parts of India shut their shops for many days to avoid raids by tax authorities looking for high-value deals by people trying to convert their currency hoard into gold.
On Nov 8 last year, India made all 500-rupee (US$7.40) and 1,000-rupee notes invalid and issued new currency notes of 500 and 2,000 rupees.
The move was seen as an attack on unaccounted wealth and shadow economy.
People were given 50 days to deposit old currency notes into their bank accounts.
The country is still experiencing the shock of that decision, with most businesses reporting significant fall in retail sales.
With inadequate banking facilities, rural India and small towns have been the hardest hit.
Weddings, which account for a big chunk of India’s gold sales, were disrupted.
The World Gold Council expects the market to remain weak in 2017.
“The Indian market faces a challenging time in 2017. We anticipate many of the headwinds that affected demand in 2016 to continue into this year.
“But we are confident that the government’s move towards a more transparent gold market will ensure that gold remains an important asset class for millions of people in India,” said Alistair Hewitt, head of market intelligence at the WGC. - Bernama
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