Gold: Signs of life in physical market - ANZ

The analysis team at ANZ notes that the physical gold demand in India is showing signs of improvement which is likely to be a positive development for prices going forward.

Key Quotes

“Gold imports by India more than tripled in April, driven by jewellers restocking in anticipation of a recovery in sales during the wedding season. Shipments rose to approximately 94 tonnes, from 30.1 tonnes a year earlier, according to the Reserve Bank of India data.”

“The rebound has been in part due to the market slowly adjusting to the policy initiatives implemented last year, which aimed to purge the country of black money and instil greater transparency in the financial system. Other policies, such as the re-introduction of excise duty, also impacted gold demand.”

“However, we do expect a growth rebound in India as the impact of demonetisation wears off. This should see consumption improve. As currency in circulation improves, household spending should edge up. Further support is likely from the increase in civil servant salaries. Early signs of improvement are becoming visible in high frequency indicators such as auto sales and passenger air travel.”

“Such growth will support India’s gold market over the next year or so. India’s gold demand tends to be relatively correlated with income growth.”

“The World Gold Council expects annual purchases to be at the higher end of an estimated range of 650 tonnes to 750 tonnes in 2017. This is against imports of 716.4 tonnes for the financial year ending 31 March 2016.”

“Anecdotal reports suggest sales during the auspicious gold buying day of Akshaya Tritiya at the end of April were about 5 per cent higher than last year.”

“China’s gold imports have also showed a strong pick up in recent months. Using HK Census data, imports rose 55% y/y in March.”

“According to China Gold Association data, demand totalled 304 tonnes in Q1 2017, with bar sales climbing 61% to 101 tonnes.”

“Jewellery sales were a little flatter, up only 1.4% to 171 tonnes.”

“However, the PBoC has remained on the sidelines over the past six months. This is most likely the result of overall foreign exchange reserves, which have been under pressure.”