Gold demand in India back to pre-Covid levels in September quarter: WGC

The demand for gold in India has bounced back sharply from the lows seen during the Covid pandemic in 2020. For the quarter ended September 2021, the demand for gold in India jumped 47 per cent year-on-year (YoY) to 139.1 tonnes as compared to 94.6 tonnes in the year ago period, and higher than the 123.9 tonnes recorded in the pre-pandemic September 2019 quarter, World Gold Council (WGC) said in its latest release. In value terms, the demand surged 37 per cent YoY at Rs 59,330 crore during the recently concluded quarter. 

Gold jewellery demand in India during the July – September 2021 period surged 58 per cent YoY to 96.2 tonnes due to strong pent-up demand, occasion-related gift buying, economic rebound and soft gold prices. Bar and coin investment demand, too, increased 27 per cent y-o-y to 43 tonnes during this period. At the regional level, north India, according to WGC, outperformed the south, as some southern states such as Kerala were impacted by higher Covid cases and impacted jewellery store operations.

Typically, July – September is a seasonally weak period for gold demand due to monsoons and inauspicious periods like Pitru-Paksha when buyers usually prefer to postpone gold purchases.

“This (surge) is primarily driven by what appears to be a firm grip on the pandemic with higher vaccination rates and falling infection rates, leading to a strong rebound in economic activity. Softer gold prices also generated significant consumer interest,” said Somasundaram PR, Regional CEO, India, World Gold Council.

Another reason for the surge in demand for gold, according to WGC, is the steady rise in inflation in India with savers typically buying the yellow metal as a hedge. “For each one percentage point increase in inflation, gold demand increases by 2.6 per cent. On the other hand, for each 1 per cent fall in the gold price in any given year, demand increases by 1.2 per cent,” WGC said.

India gold demand

Going ahead, WGC expects the demand to pick up pace as economic activity comes back to normal across most Indian states after the second wave of the Covid pandemic.

“With the upcoming festive and wedding season, there is all the more enthusiasm towards gold demand, and we anticipate it to be the busiest gold-buying season, since the start of Covid. But the potential for further waves of Covid, which may require further lockdowns, is an ever-present threat,” Somasundaram cautioned.

World view: ETF outflows

At the global level, the demand for gold dipped 7 per cent year-on-year and 13 per cent quarter-on-quarter to 831 tonnes, primarily due to outflows (27 tonnes) from gold-backed exchange-traded funds (gold ETFs). Gold prices, meanwhile, averaged $1,790 per ounce (oz) throughout the quarter – down from September 2020 quarter’s all-time high of $1908 levels.

“A year ago, investors were flocking to gold, seeking a hedge against the pandemic. And gold ETFs were particular beneficiaries of these flows, adding more than 1,000 tonnes over the first three quarters of the 2020. On balance, it appears the prospect of a higher interest rate environment is more of a concern than ‘transitory’ inflation,” said Louise Street, senior market analyst at WGC.

Going ahead, Street expects the full-year gold demand to be led by strong consumer and central bank purchases, which he expects will mitigate losses from ETFs.

“Jewellery demand will continue to exceed last year’s levels, but investment demand in total will be weaker in 2021, despite healthy bar and coin demand,” Street said.

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