After a few complicated months at the end of 2016, India is getting back on its feet and pushing forward the gold demand that is always fuelled by their traditions and poor banking conditions. The World Gold Council, also known as WGC, reported that the Asian country is recovering after the demonetisation process and the money is going back to gold jewellery.

During this first quarter of 2017, overall demand increased by 5 percent, reaching US$18.85 billion. But more things need to change in order to see substantial recovery and progress in this complex sector.

The Threat To Gold Ahead

The WGC and its report tried to explain more than a simple boost in demand. This organisation is aware of the many implications that the previous months had to do with the gold market, especially with the indian gold jewellery niche.

The market is really fragile and this isn’t only for India. Numbers were solid before, years ago. Now, the industry needs to do what’s necessary to push the prices up again while stimulating demand, something that may sound difficult to accomplish.

Between December and March, gold price went up by 9 percent while the demand dropped dramatically. The demonetization process that occurred in India had a lot to do with this important drop. Nevertheless, the economy at its lowest levels needs to recover and adjust the direction towards a fresh remonetisation.

The expectations on gold jewellery demand

With a wedding season and a few major festivals coming up, we can expect an important boost for gold jewellery demand, something intrinsic to the tradition. After taking out almost 90 percent of the currency on the streets, the remonetisation process is getting more agile, injecting capital to most sectors of the economy, with gold cash loans for jewellery makers available to local merchants to continue steady supply of gold.

While China continues to be a leading country for gold demand, not only in its jewellery format, most of the potential hikes in prices are in the hands of the Indian people. Here, we should give important attention to the rural population, which has no access to the regular banking system and needs to store their wealth in gold.

But another major event is about to hit the society in India: the Goods and Services Tax. Also known as GST, this new system is going to represent a massive overhaul of the economy nationwide. This event may have mixed effects on gold jewellery demand. Most of the attention will be going to the details of the new system, trying to realise if there are any benefits in skipping gold and investing in other assets.
Before full implementation of GST, gold jewellery demand is expected to increase.

The natural thing to occur is uncertainty, pushing investors towards safe-haven assets like gold. Nevertheless, if the details of this system directly affect the financial nature of jewelry made of the yellow metal, it would be a key player for the price in the second semester of 2017.