Chidambaram effect: Gold demand slips, India gives way to China

Finance Minister P Chidambaram's strong-arm measures against bullion imports have paid off handsomely, and taken the pressure off the rupee to some extent. The demand fell 32 per cent to 148 tonnes in the July-September quarter compared with the same period last year, according to the gold demand trends report released by the World Gold Council on Thursday.

The trend is expected to continue into the October-December quarter as well.

The World Gold Council India Managing Director P.R. Somasundaram pegs the 2013 calendar year demand between 900-1000 tonnes, and predicts that the demand this year is likely to be marginally higher than last year's 863 tonnes.

As a result of the firm measures unleashed by the Ministry of Finance - in the form of both duty hikes and import restrictions - China is expected to overtake India for the first time in gold demand.

Total jewellery demand in India for July-September quarter was down 23 per cent at 104 tonnes. Surprisingly, in the said quarter, a large amount of gold - at 61.3 tonnes - got recycled.

In any quarter, the recycled portion is typically around 30 tonnes. Since the quarter precedes the festival season, a leading jeweller says, many people who invested in gold when prices were low capitalized on the rally in gold prices.

"The year-to-date (Jan-Sept) demand is still robust, which is 19 per cent higher than last year," says Somasundaram. It has been so because the government's measures were kicked off in August, after which the demand started tapering. The Gold Council's India MD says that the government curbs are unlikely to dampen demand in the market.

The festive season was fairly good for jewellery demand, but the demand over the next two quarters depends availability of gold and prices in the market, says Ganesh Narayan, Joint Managing Director of C.Krishniah Chetty & Sons, a jewellery retailer in Bangalore.

The Bank of Nova Scotia, a foreign bank operating in India, earns a sizeable chunk of its income from gold business. "Our gold business has dropped significantly," says Sanjeev Mittal, Chief Executive Officer. "We are trying to explore new opportunities that can offset the losses from the gold segment."