India’s total gold demand in Q3 2020 was down 30% to 86.6 tonnes year-on-year, which underscores the likelihood that the country may register its lowest annual gold consumption on record, according to the World Gold Council (WGC). Third-quarter demand was nonetheless 35% higher than Q2 2020 partially due to easing of lock down and some low prices in August that provided a small window of buying opportunities.
India’s gold jewellery demand in the year to date (January to September 2020) was down 57% to 170.7 tonnes on a year-on-year basis. Among the factors that affected India’s Q3 gold demand were Covid-related disruptions, bleak consumer sentiment, and high prices accompanied by volatility.
Speaking at the virtual launch of the WGC’s latest Gold Demand Trends report, Somasundaram PR, Managing Director, India, WGC, said: “Q3 tends to be relatively low generally due to seasonal factors like monsoons and inauspicious periods like Pitru-Paksh and Adhik Maas. Jewellery demand fell by 48% to 52.8 tonnes as jewellery purchases did not have any support of festivals or weddings. On the other hand, gold’s safe haven attributes and an anticipation of price rise paved the way for an increase in investment demand for gold bars and coins by 51% to 33.8 tonnes.”
Somasundaram informed that bars and coins will continue to lead Q4 gold demand as Covid had taken away the jewellery buying experience, with most purchases being made on a need basis only. He highlighted the rapid rise in digital engagement with several tech initiatives by top jewellers to woo buyers through the lockdown. “Digital platforms selling allocated gold through wallets also recorded sharp rise in volumes, along with significant activity in Gold ETFs following a prolonged period of quiescence,” he added.
“Due to higher prices, recycling increased by 14% to 41.5 tonnes, though inventory rationalisation by jewellers and steep discounts in the market did impact full price recovery for sellers. Imports resumed in anticipation of festival demand as supply chain-related restrictions were eased, growing from 9 tonnes in the previous quarter to 90.5 tonnes (8% year-on-year increase),” he noted.
While Q4 typically witnesses an upswing in gold demand on account of the festive season coupled with a busy wedding season post-harvest, this year, a good monsoon notwithstanding, the price and covid shadow will affect sentiment, WGC said. The “gold lining” in this case, may be that as weddings and festivities become low-key affairs, savings on other spends could be channelised into gold.
An uptick in pent-up demand will unfortunately also spur more people to engage in smuggling activity, given the existing 16.36% duty on gold imports. This will drive the grey market higher unless the government is willing to step in and do something about it.
“A sense of cautious optimism has returned among the trade stemming from the fact that the society is gradually learning to live with Covid. However as we are still reeling under the impact of the pandemic and fear of second wave of infections without clear sight of many variables on consumer behaviour, volatile prices or length of the disruptions, we will not be able to quantify the impact on the full year gold demand in India other than to say that demand could be multi-year low,” Somasundaram concluded.
Photo Caption: © Lotus Jewellery Creation