India's gold demand dropped rapidly after demonetisation

Total demand for gold whose twin drivers are jewellery and investment buying advanced two percent in 2016 to 4,309 tonnes compared with 2015,industry body

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The price dip in November, when Trump's "positive growth rhetoric" led to the dollar and equity markets strengthening, contributed to a strong recovery in the bar and coin market in the final quarter, Hewitt said.

The World Gold Council reports in its Gold Demand Trend Full Year 2016 that a 5% drop in Q4 set the set the seal on a hard year for gold jewellery. In China, jewellery demand was dampened due to a high gold price throughout much of the year, coupled with constrained levels of supply in Q4, owing to a tightening of currency controls in the country.

Global gold demand reached a three-year high, rising 2% to 4,308.7 tonnes over the period, while annual inflows into exchange traded funds hit the second highest level on record at 531.9 tonnes. Combined gold bar and coin demand was described as "exceptionally soft" by the WGC, dipping by around 2% to 1,029.2 tonnes.

Total Indian consumer demand fell 21 percent last year to 675.5 tons and may be between 650 and 750 tons this year, the council said.

In spite of resilient consumer demand in the fourth quarter of 2016, the two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21% and 7% respectively.

While this was the seventh consecutive year that central banks were net purchasers of gold, they bought 33% or 193 tonnes less than they did in 2015 according to the report.

Global gold demand rose merely 2 percent in 2016 and touched 4,309 tonnes.

Alistair Hewitt added: "The Indian market faces a challenging time in 2017". Prices then fell between October and December, which meant gold prices were 8% higher over the year as a whole.

Total consumer demand for FY 2016 fell by 11 per cent to 3,071 tonnes, from 3,436 tonnes in 2015.

Also, the impact of demonetisation on rural India could be temporary, as healthy income and good monsoon will support gold demand going forward, he said.

Total supply grew by 5 per cent to 4,571 tonnes this year from 4,363 tonnes during 2015. That tailed off later in the year, however, with outflows of 193.1 tonnes seen in the fourth quarter.

Major speculative investors were net buyers of Comex gold futures to the tune of 109,407 contracts as of January 24, up 2,366 from the week before, according to the Commodity Futures Trading Commission.

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