Gold Silver Reports —  India’s gold demand surged in the June quarter, helped by improved rural sentiment and buying ahead of the 1 July implementation of the Goods and Services Tax (GST).

The country’s gold demand in the three months rose 37% to 167.4 tonnes, according to the World Gold Council (WGC). Jewellery and investment demand rose 41% and 26%, respectively, over a low base a year ago.

“Towards the end of the quarter, one of the biggest demand drivers was the GST rate on gold, which spurred consumers and traders to advance their gold purchases ahead of the GST roll-out,” said Somasundaram PR, managing director, India, at the WGC.

India’s gold imports hit a record high of 104.6 tonnes in May as the market stockpiled gold ahead of the June GST rate announcement.

“Expecting a punitive GST rate, jewellers and consumers alike crammed their purchases into the first two months of the quarter, slowing down once the government confirmed that a 3% rate would be applied,” WGC said in a report released on Thursday.

It also said that another brief flurry at the end of June, before the GST’s roll-out, pushed local prices to a premium of around $3-4 per ounce above the international price, although some traders reported paying a premium as high as $10/oz in some instances.

Despite the 3% GST rate on gold being lower than anticipated, WGC expects it to cause some short-term disruption as manufacturers, retailers, importers and consumers adapt to the new indirect tax regime.

“As consumers and importers brought forward their purchases to Q2, demand will likely be subdued for a few weeks. Stock is plentiful across the supply chain and consumers who have recently purchased are unlikely to do so again in the short term,” it said.

According to WGC, the market environment should become more settled towards the end of the year, which should help gold demand – particularly during the September-October festive season.

“Our full year demand estimate remains between 650 and 750 tonnes, the higher end of the range being more likely,” Somasundaram said.

Global gold demand of 953.4 tonnes in the June quarter was 10% lower than in the year-ago period. First-half demand fell 14% to 2,003.8 tonnes because of a slowdown in inflows into gold-backed exchange traded funds (ETFs).

“Prospect of continued, if modest, monetary tightening dampened ETF demand. Rising interest rates are usually interpreted as being negative for gold. But the Federal Reserve continues to telegraph its plans for monetary policy clearly, and – since the end of Q2 – market expectations of a third US rate hike have subsequently been pushed out to Q1 2018. This gives investors ample time to adjust positioning, so we believe that gold should not come under undue pressure as the timing of a likely rate rise approaches,” it said

Pre-GST buying spurs gold demand in India, import at record high in May: WGC | Neal Bhai Reports | Gold Silver Reports