India’s gold import bill is likely to come down significantly for this (as well as for the next) financial year as sales of the yellow metal has taken a drastic hit since the government announced the demonetisation move on 8 November last year. There was indeed a big buying of gold (in cash) for two weeks after 8 November, but after that period, gold sales have taken a big hit and have fallen by about 50%. Analysts feel that if the cash crunch scenario drags on for another three months, India’s gold import would come down by over 30% that many feel is quite a significant quantum. But this should be a pleasing event for the Ministry of Finance as lower import of (unproductive) assets like gold would help in keeping the nation’s external balance in order. “Right now, people are not being able to withdraw the amount that they are entitled to withdraw, so there is a hoarding tendency at this point of time and therefore any discretionary spending, including one for gold, has taken a big hit,” says Chirag Mehta, Senior Fund Manager with Quantum AMC. He, however, is hopeful about the revival of gold demand in the second half of this year. Going forward, the domestic demand for gold is likely to be impacted by inflation, the state of the monsoon, and “most importantly, by the movement of real interest rates”, says Mehta. Real interest rates are returns that one gets on government securities or bank deposits minus retail inflation. The RBI, in its latest monetary policy, has lowered real interest to about 1.25% from 2%. “If the RBI decides to support growth, as a result of which the inflation goes up, thereby pushing real interest rates to lower than 1%, more and more people are expected to move towards gold. Otherwise, people would prefer to invest in financial instrument which is where government wants national savings to go. So gold demand would depend on how inflation and rupee pans out in 2017,” feels Mehta. Gold has traditionally been seen as a perfect hedge against higher inflation. Even after Brexit and Italy’s referendum, gold has given a gain of about 7% in calendar year 2016. India and China have been the prime mover for global demand for gold with each importing about 1,000 tonnes of bullion every year. Even as Indian demand is expected to remain muted, the bullion demand from China is likely to go up as there are devaluation concerns of the Chinese currency. Analysts expect the same from Europe as the situation there is becoming worse, both economically and politically.