Gold Demand Surge in Anticipation of GST

In the land of pompous customs and festivals, Gold demand is always high as it is the most sought out luxury commodity. Additionally, the country with ‘Savings’ in its genes, Gold is one of the best resorts for investment.

The supremacy of Gold got reasserted when World Gold Council (WGC) released data for 1^st Quarter of 2017. A 37% rise in demand for gold in the domestic market is registered over April-June quarter last year. This rise is striking in the face of a global slump in gold demand as 10% fall is recorded in same period globally.

Reason for the Surge

Though the rise is commendable yet it is supported by two favourable factors, i.e. Goods and Service Tax (GST) and conducive Base Year. In the anticipation of higher tax rates on gold under GST regime, people rushed to secure maximum possible gold at lesser prices. Also, the previous year, demand was hit severely due to Jewelers’ strike in protest of the imposition of Excise Duty. Both the factors have collectively resulted in 45.3 tons of extra sale over 122.1 tons sold previous year in the same quarter.

Expectation from 2^nd Half of 2017

Somasundaram PR, Managing Director, WGC reported that overall gold demand for 2017 would range between 650-700 tons. It is comparable with the demand in the previous year which witnessed the sale of 674 tons. He, further, stated that the demand in second half of 2017 would exceed the mark of 439 tons recorded in later half of last year. Simultaneously, he remained modest and added that it may still not cross the 5-year average mark of 439 tons.

The conservative forecast of gold demand in the 2^nd half of 2017, incidentally post-GST era, can be attributed to higher tax rates, transparency measures and push for the cashless economy. The mandatory requirement of PAN card registration and cashless transaction above a certain amount is reducing the demand. Moreover, government’s emphasis on e-gold certificates is another factor swaying investors from demanding actual gold.

The year 2017 seems promising with government reforms and a good monsoon. This would certainly have a positive impact on gold demand. Though, time will only tell the fate of gold in our dynamic, sizzling economy.