It looks like gold is going to have a dull year; here’s why!

Kolkata | Mumbai: Gold consumption in India is unlikely to cross 750 tonnes this this year -which will mean a 12% drop from 2015 -in part due to the efforts of authorities to discourage buying of the metal in physical form.

A number of issues, like the 1% excise duty on jewellery, the requirement to give PAN whenever the purchase exceeded Rs 2 lakh, a close watch of tax authorities over gold sales and high prices have affected consumption, said trade executives and analysts. Availability of paper gold -sovereign gold bond -will further bring down physical consumption of, they said.

“Consumption of gold in India is declining,“ said Bhargava Vaidya, a senior gold trade analyst. “Rising gold prices is one of the major reasons. In September, gold touched Rs 32,000 per 10 gm. There will be few buyers at this level. The introduction of sovereign gold bond will reduce physical gold consumption. Though till date urban India is participating in the scheme (bond sales), the government is trying to make it accessible to rural India. Once that happens, we will see physical consumption de clining."

In fact, to make the sixth tranche of sovereign gold bond ­ opened for subscription on October 24 ­ attractive, the government has offered a Rs 50 per gm discount.While the sovereign gold bond is expected to moderate the physical investment demand for the metal in the form of bars and coins, India's growing passion for lightweight modern jewellery is expected to pull down gold demand from jewellery makers in coming years.

Somasundaram PR, managing director at the World Gold Council-India, blamed trade-related issues -strike in first quarter to protest against the excise levy, the need to give PAN and increased price -for slowing down consumption. He anticipates demand to return to normalcy in the fourth quarter due to the peak wedding season and Diwali.