International demand for gold fell to 1,034.5 t in Q1 2017. The year-on-year fall of 18 per cent results from the first quarter's contrast with Q1 2016, which was the highest ever. While strong, inputs into 109.1 t ETFs were nonetheless a fraction of the near-record inflows from last year. Slower demand from central banks also added to the weakness. However, bar and coin investment was healthy at 289.8 t (+9 per cent yoy), while demand was marginally firming in both the jewelry and technology sectors.

• Though year-on-year slightly firmer, demand for jewelry remains soft: the 474.4 t in Q1 2016 was a seven-year low;

• The rising gold price was negative for demand while one or two fast gold pullbacks were used in some markets as purchasing opportunities

• A more diverse country level image was obscured by the steady state of global demand. Gains in India, Iran and the US were concentrated, outweighing only modest losses elsewhere

Demand for gold jewellery has been broadly steady, but remains weak in the longer term. Demand was 18 per cent below the quarterly average of 587.7 t over five years. The 9 percent rise in the price of the US$ between the end of December and end of March limited demand, although the weakening of the US dollar meant that consumers were covered to some degree in many markets. In most major commodity markets, gold denominated in local currencies gained between 3 and 7 per cent, while Turkey was a notable exception. India and China, which together account for more than half of the industry (56 per cent in Q1), remain heavily affected in the sector.

India

Demand for Indian jewelry rose 16 per cent from the extraordinarily low level of last year as business conditions improved after a very tough 2016. When liquidity improved, pent-up demand from the closing weeks of 2016 was gradually released. Yet Q1 was already poor at only the third quarter of this decade, at 92.3 t, as demand dropped below 100 t. And the industry remains uncertain, awaiting clarification as to whether the new Goods & Service Tax (GST) would result in an increased tax burden on the end user.
The gold price kept mixed fortunes for Indian jewelry consumers during Q1: rupee strength meant a 3 percent increase in the domestic price compared to a 9 percent increase in the LBMA price. During the opening weeks of 2017, the local price rose steeply, until a strong rupee appreciation during February and March. The price pullback during March was well-timed to coincide with expected gold purchases ahead of Q2 wedding season and end of April's Akshaya Tritiya festival.
The RBI managed to rebalance the economy of India, thereby relieving pressure on cash-strapped consumers. By the end of March, 85% of the currency value withdrawn from circulation had been returned under demonetisation. The RBI also gradually eased temporary restrictions on the amount of money that could be withdrawn from bank accounts , especially aiding cash-dependent rural demand. Despite the residual effects of the program, rural investment partly recovered as cash was pumped back into the economy. That is demonstrated by sales of motorcycles, which have recovered from the lows in December.