The September quarter has proved to be one of the worst for jewellers with an increase in import duty, followed by a sharp increase in prices, pushing gold's price to an all-time high. The demand for gold, imports and import bills also fell sharply after the increase in duty and prices.

Despite some moderation in prices in the last 10 days, they are yet to come to a level that encourages investments in the precious metal. While the high price has hit jewellers hard, it comes as good news for the government as the gold import bill has started falling at a time when crude oil prices are rising. On a monthly basis, the import bill for gold in August was at $1.36 billion, a 36-month low.

Even on a year-on-year basis, the import bill for gold in the first 5 months of FY20 was at $14.5 billion, a three-year low.

Worried bullion traders and jewellers say that for gold, Q2FY20 is among the worst quarters, at least in this decade.

The import duty on gold was raised from 10 to 12.5 per cent in the budget presented on July 5. Soon after, the demand for gold and imports, fell.

In the first six months (January to June) of this calendar year, India imported 427.8 tonnes of gold at a monthly average of 71.3 tonnes. However, in July, only 29 tonnes were imported and in August, imports fell to 27 tonnes. It September, the trend is unlikely to change due to the ongoing Hindu religious event. However, analysts tracking gold imports closely said that out of 56 tonnes imported in July and August, hardly 20 tonnes were imported for the domestic market. The remainder was re-exported.

Only $1.2 bn spent on gold for domestic use

This means that out of $3.08 billion spent on gold imports in July and August, only $1.2 billion was spent on importing gold for the domestic market. Analysts, quoted earlier, said that the demand for gold has fallen by a third in the September quarter. World Gold Council data shows that India’s average September quarter demand is around 175 tonnes.

Investors prefer gold bonds

According to analysts, the demand for gold was negligible mostly due to the price, nearly Rs.40,000 per 10 gramme, as investors of physical gold have to pay three per cent GST apart from making charges. Whatever investment demand was seen, was mainly for sovereign gold bonds. According to RBI data, there have been three such bond issues post budget - in July (bonds worth Rs 185 crore sold), August (bonds worth Rs 359 crore sold) and September (bonds worth Rs 244 crore sold). In gold terms, bonds worth Rs 788 crore that were sold amounted to 2.19 tonnes.

The investment in sovereign gold bonds in the last two months was the highest after July 2017, when in a single month bonds worth Rs 653 crore (2.35 tonnes in gold terms) were sold.