India's 2018 gold demand may remain below 10-year average

Gold demand in India is likely to remain below its 10-year average for a third year in 2018 as higher taxes and new transparency rules on purchases may cap last year's rebound in buying, the World Gold Council (WGC) said on Tuesday.

India is the world's second-biggest gold consumer and lower demand there could rein in global prices that have risen 8 percent since mid-December, although a drop in imports of the metal would help India reduce its trade deficit.

Gold consumption in 2018 will likely be between 700 and 800 tonnes versus 727 tonnes last year, Somasundaram PR, the managing director of WGC's Indian operations, said on Tuesday. Indian demand has averaged 840 tonnes over the last 10 years.

Gold demand will lag because of a higher goods and services tax (GST) on bullion purchases imposed in 2017 and measures to track gold purchases, he said.

In July, the GST on gold was raised to 3 percent from 1.2 percent. India has also made it mandatory for customers to disclose their tax code, or Permanent Account Number (PAN), for high-value gold purchases.

The government moves have disrupted the business of the small jewellers that account for nearly two-thirds of India's total sales, Somasundaram said.

 “More changes are coming in like hallmarking, responsible gold sourcing, all this will continue to disrupt the industry ... It will take two years for India to reach normal demand level,” he said.

Gold is a mainstay of Indian culture, serving as the primary vehicle for household savings for hundreds of millions of people in Asia's third-largest economy.