A nationwide lockdown imposed to curb the spread of the COVID-19 pandemic and a surge in prices led to a 70 per cent crash in gold demand in India in the April-June quarter, data from World Gold Council showed on Thursday.
Last quarter, demand for the precious metal in the country was just 63.7 tonnes, compared with 213.2 tonnes in the year ago quarter, according to WGC.
In value terms, India’s gold demand in the second quarter was at Rs 26,600 crore, versus Rs 62,420 crore, down 57 per cent year-on-year.
India imposed a nationwide lockdown from March 25, which led to a near complete shutdown across the country over April and May, barring essential grocery and medical stores. With markets closed and weddings and other functions, either postponed or only small ceremonies held, jewellery demand last quarter was at only 44 tonnes, down 74 per cent from a year ago. A surge in prices has also weighed.
For the first half of 2020, total gold demand was down 56 per cent at 165.6 tonnes, while jewellery demand tumbled 60 per cent to 117.8 tonnes.
The economic uncertainties fuelled by the COVID pandemic, global central central banks cutting interest rates to near zero and trillions of dollars in stimulus injected by major economies has fuelled a huge investment demand for gold in the world, driving up prices sharply. Earlier this week, spot gold prices touched $1,945 an ounce, rallying over 20 per cent this year. That, coupled with a depreciation in the rupee has led to domestic gold prices touching an all-time high of over Rs 53,000 per 10 gram.
Apart from gold, silver prices have also shot up over 30 per cent in global markets, scaling seven-year highs. Apart from the investment demand, silver is also a key component in electric vehicles and as the demand for the latter rises, the metal will also be in demand. Some reports suggest that as much as half of the global demand for silver is from industries.
Since 2019, domestic gold prices have risen close to 60 per cent, which could act as headwinds for consumer demand, even as investors will be content with the way prices have shot up.
Globally, amid the pandemic, there has been a huge flight to safety, which led to a surge in investments in exchange traded funds. Inflows into gold ETFs reached 734 tonnes by the end of June, taking total global holdings to a new record high of 3,621 tonnes.
The total global gold demand in the second quarter fell 11 per cent from a year ago to 1,015.7 tonnes, as the surge in gold ETFs, offset to an extent the plunge in jewellery demand in India and many other Asian markets.
As India has begun to lift the lockdown from June, there seems to be some demand in the market, noted Somasundaram PR, managing director, India, World Gold Council. “Towards mid-June, when the lockdown was opened in certain centres, people went and bought gold. That also shows that when there is a window of opportunity, there is a latent demand,” he said.
A good monsoon and agricultural activity is also positive for gold demand, Somasundaram added.
However, how things pan out over the rest of the year, will depend on the price movement as well as how the pandemic is controlled; for now cases continue to surge across many parts of the country.
“The cases are still increasing and the numbers don’t seem to give good confidence. Yes, the shops have opened up, I am doubtful, people would absolutely rush to buy jewellery, because it is not just about purchasing jewellery or bars and coins, it is about confidence, we have seen price increase… People will wait and see whether prices are volatile or will go up. Buying is also linked to how social functions happen,” said Somasundaram, who remains cautiously optimistic.
Analysts expect gold will continue to be in demand globally as far as investors go, given that a solution for the pandemic is still to be found and governments are expected to continue with stimulus measures for a few more months. Rising geo-political tensions between the US and China will also have a bearing.
“Till Diwali, gold may test $2,000 per ounce and in the domestic market we are expecting around Rs 54,000 per ten gram level,” said Anuj Gupta, deputy vice-president—commodities and currencies research at Angel Broking.
September marks the onset of the festive and wedding season in India. While this could temporarily lead to an upswing in gold imports, the growth may not be much, as all celebrations are expected to stay muted this year, said Madan Sabnavis, chief economist at CARE Ratings.
“The rising metal prices could act as a deterrent in consumer’s gold purchase decisions, along with concerns of unemployment and income erosion,” he pointed.
