Lifting of black money rules boosts gold and jewellery sales

The removal of anti-money laundering provisions from the gold and jewellery sector had a positive impact on demand, as rural demand picked up in the fourth quarter of 2017, supporting a key element of the market, World Gold Council said in its latest India market update.

The Prevention of Money Laundering Act (PMLA), which was extended to the gems and jewellery sector in August, had negatively affected jewellery demand as consumers and retailers were faced with a heavy administrative burden to prove the veracity of cash transactions. The effect was most pronounced in rural areas, where cash is widely used.

Indian jewellery demand recovered in Q4, gaining 4 percent y-o-y to reach 189.6t, the highest fourth quarter in our 17-year series. Rupee gold prices trended lower during the quarter, which proved positive for demand. The economic backdrop helped bank loan growth. Demand was further supported by: festival demand the government’s decision to remove anti-money laundering regulation from jewellery improved rural sentiment. In contrast with Q3, when the price was in almost permanent discount, the local price traded at a small premium to the international price for much of Q4. October started well: the

Consumers in rural areas are the driving force behind Indian gold jewellery demand. Positive sentiment among this demographic is quickly felt in certain areas of the economy, the gold jewellery market being one of them. Sentiment was vastly improved compared with Q4 2016, when these consumers were struggling with the drastic and unexpected demonetisation of the economy. A 6% increase in the minimum support price for kharif crops also helped.

The council said the market is becoming increasingly accustomed to the GST. The organised retailers were best equipped to transition to the GST system and this worked to their benefit as they increased their share of the jewellery market. Looking forward, the council said it expected a continued recovery in demand as the market increasingly accepts, and adapts to, GST. And the relative outperformance of chain stores and organised retailers is likely to be a key feature of this recovery.

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