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Domestic Gold Demand to Rise in H2 Say Analysts at India International Gold Convention

Aug 18, 2016

Gold demand in India is expected to pick up in the second half of 2016 after a weak performance in the first six months of the year, opined analysts at the India International Gold Convention (IIGC) held last week in Agra. They said that demand would be driven by the festive season and increased incomes for farmers, following a good monsoon and government employees after the implementation of the 7th Pay Commission hike.

During the first half of the year, the market had entered into deeper discount the moment government announced levy of the excise duty, it was reported. While the high import duty had already incentivised parallel imports, the unexpected rise in prices in early 2016 and destocking by jewellers on account of the proposed excise duty pushed domestic prices and drove demand out further, besides increasing scrap flows, most speakers agreed.

“High unofficial imports, high price, imposition of excise duty and subsequent strike by jewellers had impacted the demand of gold in the first half. Demand is expected to come back and price discounts expected to narrow from October. The overall demand is expected to remain around 380 to 400 tons for second half of calendar 2016,” said Debajit Saha, head of bullion research at Foretell Business Solutions Pvt. Ltd., the organisers of the conference.

Others opined that global demand will continue to remain strong, and prices too will be high on account of ultra-low real interest rates in the USA and elsewhere. Gold is expected to remain above $1270 per ounce, while silver will continue to remain above $17 per ounce in London market, they estimated.

Sudheesh Nambiath of Thomson Reuters GFMS said that gold price in India could decline and find support at Rs. 29,000/10 gm and later rise towards 33,500/- by middle of next year. Lack of physical demand from Asia, increased scrap selling at higher price levels and stable Indian rupee will be key factors that can help put some pressure on domestic prices. In case of silver, supply overhang has kept the trade muted.

He added that given its high correlation with gold, silver price is very likely to decline to Rs. 43,000/- per kg initially before rising again. Price of silver is expected to cross Rs. 50,000/- per kg only towards first half of next year. Demand should return in jewellery and silverware as price declines later this year. Overall silver imports this year are estimated to remain in the range of 3,000 to 3,500 tonnes as against 7,954 tonnes last calendar year.

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