As economies came out of pandemic-induced lockdowns towards the fag end of 2020, demand for gold picked up in the first quarter of this year. According to a recent report by Motilal Oswal, the demand for gold bars and coins continued to witness a surge during the first quarter of 2021.
The report points out that there was a sharp year-on-year increase in jewelry demand in the first three months in India as well as the rest of the world, especially in China, due to an improving economic scenario, fall in gold prices and festivities.
The report observes that net bullion imports, which constitute 85-90 of India’s gold supplies, saw a 262 per cent surge in 1Q CY21. Demand for gold jewelry remained robust in India, with volumes up 38.3 per cent. This was boosted by easing of lockdown restrictions, lower gold prices, magnified by lowering of customs duty, and demand due to the wedding season.
Though the total consumer demand for gold in India, which includes jewelry, bars and coins, witnessed a 37.4 per cent year-on-year growth in the first three months of 2021, lockdown in different parts of the country can dampen future outlook.
The report points out that with the bottoming out of gold prices, consumers advanced purchases in the form of gold bars and coins the demand for gold bars and coins rose 33.8 per cent YoY in 1QCY21.
This was mainly due to the robust consumer demand and stocking up ahead of festivals such as Akshaya Tritiya in May 2021. Interestingly the buying of gold ahead of the wedding season continued up to mid-April 2021 on the back of a correction in gold prices.
However, the report states that there was a major drop in demand for gold as an investment, especially via ETFs, as a fall in gold prices and higher interest rates led to investors switching to other asset classes. At the same time, there was a sharp increase in net bullion imports in India due to robust consumer demand and stocking ahead of festivals.
Despite these positives in the first quarter of 2021, the prospects of retail gold jewellery looks uncertain due to the ongoing second Covid-19 wave and lockdowns. All the major players have been affected by the lockdowns in several Indian states. Gold jewellery major Titan had indicated in its fourth quarter earnings call that 50 per cent of its stores were closed due to the lockdown and the remaining ones were expected to be impacted sooner or later. Despite this, experts say that the gold jewelry players are, however, better equipped in 2021 to deal with the disruptions due to the lockdowns, with omni-channel strategies and higher usage of technology, which may offset the impact to some extent.
It is expected that once the gold stores reopen, demand will rebound as seen earlier, especially given the low gold prices (15 per cent lower from its August 2020 peak of Rs 55,900 per 10gms) and pent-up wedding demand.
Experts from Motilal Oswal feel that a fall in gold prices below the key psychological level of Rs 50,000/10gm was instrumental in spurring bargain buying and releasing pent-up demand in the country. Furthermore, a reduction in custom duty, together with an appreciating rupee value throughout the first quarter for 2021, magnified the impact of lower gold prices in dollar terms.
Besides this, consumer confidence remained high on the back of easing restrictions and lower daily cases in India. During this time, organized players outperformed smaller and unorganized players during the period due to higher trust placed in branded players by consumers and the travails of unorganised players in preceding quarters on account of the lockdown.
An interesting trend that popped up due to the current pandemic when people were not going out to buy gold at different retail shops and the lockdown restrictions was buying digital gold instead of physical gold. “Gold can be bought online and withdrawn online round the clock on all the days of the year. One can get the physical delivery of gold at one's doorstep and can be used as a collateral for online loans. The gold is genuine and the purity is 24K 99.5 per cent. The purchase is stored safely and is also fully insured. The digital gold purchased by a customer will be stored with a reputed custodian on a consolidated basis, i.e., daily purchase across all the customers,” said Ketan Kothari, Director of Augmont, a digital gold providing company.