MUMBAI (Commodity Online): India was the strongest performing market in the third quarter, with year-on-year growth rates of 7% and 12% in jewellery and investment demand respectively, said World Gold Council in a quarterly report.

According to WGC, the market accounted for 30% of global consumer demand, 223.1 tonnes in total, in what may seem a surprising development in light of movements in the domestic gold price during the quarter.

The strong year-on-year performance was partly reflective of price expectations among Indian consumers. After a period of broad consolidation during the first few weeks of the quarter, the rupee gold price rose fairly sharply throughout late August and early September, to a record in the local market above Rs32,000/10g. This fed expectations of further price rises, which – in a slight departure from historical precedent, whereby Indian consumers usually react cautiously to sharp price moves – encouraged consumers to buy into the rising trend, the British firm noted.

The strong quarter was also a reflection of improving sentiment among domestic consumers following the tumultuous first half of the year. Between January and June 2012, the market had been beset by jewellers’ strikes, a doubling of import duty on gold, a lower number of auspicious marriage days and government rhetoric aimed at cutting gold imports.

Retailers had kept stock levels low in the uncertain environment, but imports recovered in July as inventory levels were bolstered (aided by a well-timed dip in the local price) and the market adjusted to the customs duty.

Although lower monsoon rains during August had curtailed demand, a recovery in the rainfall during September also boosted sentiment and prompted a further wave of relief-related demand. The fourth quarter festival season also featured as a driver of demand, with stocks being increased and preparatory purchases made towards the end of the quarter.

However, the growth in third quarter demand was not sufficient to overcome the weakness experienced in India during the first half; on a year-to-date basis overall consumer demand was 24% weaker relative to the same period in 2011. While the prospects for the fourth quarter are positive, it is unlikely that demand will recover sufficiently to result in a gain for the year as a whole, WGC concluded.