Could the Sovereign Gold Bond Scheme have dampened demand for gold in the last three quarters? Hard to say, really. The scheme, launched on November 5, 2015, just ahead of Diwali, was aimed at reducing demand for physical gold. Consumer demand for gold in India declined over three sequential quarters after the last peak of 272 tonnes reached in the July-September 2015 quarter, according to World Gold Council estimates. Gold demand for jewellery, coin and bar declined to 240.6 tonnes in October-December 2015, and further to 117 tonnes in January-March 2016 before rising a little to 131 tonnes in April-June 2016.

The decline in demand has coincided with the opening of subscription for the bonds. While the Government has described gold bonds a success, it is premature to conclude that people are willing to consider alternatives to physical gold. So far four tranches have been completed, the most recent in July, and the collective demand for gold through subscriptions to these bonds was just under eight tonnes, three tonnes of which came from the fourth round. So the first three tranches got subscription to the equivalent of 1 per cent of the estimated consumer demand between October 2015 and June 2016, of 488 tonnes. The decline in demand for gold in the January-March quarter is largely due to seasonality. Demand for gold in India is largely driven by festivals and wedding buying, most of which happens in the second half of the calendar year. Demand is expected to bounce back, partly driven by revival of the farm economy following the monsoon.

Indians like to hoard physical gold —households hold about 25,000 tonnes of the precious metal. Not many care to monetise it, a reason why the Government’s Gold Monetisation Scheme has not received an enthusiastic response. Yet, the government must persist in weaning people away from holding physical gold.

Senior Deputy Editor

Related Topics
comment COMMENT NOW