India's gold demand up 37% YoY in March qtr; global demand dips 23%: WGC

The next phase of gold demand - in the second half of 2021 - will not be driven by fear, but by economic growth, WGC said

Demand for gold in India in the January – March 2021 quarter (Q4FY21 / Q1CY21) surged 37 per cent to 140 tonne as compared to the previous corresponding period, said World Gold Council (WGC) in its latest release on Thursday. In value terms, the demand was higher by 57 per cent year-on-year (YoY) at Rs 58,800 crore during the period under review, it said.

The demand in India during the March 2021 quarter is in stark contrast to the demand globally, which dropped 23 per cent YoY to 815.7 tonne, mainly driven by outflows of gold-backed exchange-traded funds (ETFs) and low central bank buying.

Back home, opening up of the economy post the lockdown coupled with the vaccination drive, according to WGC, were among the key drivers of the positive sentiment in gold. Jewellery demand, too, rose 39 per cent YoY at 102.5 tonnes, and was up 58 per cent YoY in value terms at Rs 43,100 crore.

“India’s gold demand in the March quarter rose on the back of Covid containment and positive sentiment following start of the vaccination programme. A combination of softening gold prices, buoying consumer sentiment following sharp pick-up in economic activity and return of social activities like weddings supported growth in gold jewellery demand. The next phase of gold demand - in the second half of 2021 - will not be driven by fear, but by economic growth,” said Somasundaram PR, managing director, India at WGC.

The average domestic gold price stood at Rs 47,131 per 10 gram, up 14 per cent y-o-y, but 6 per cent lower quarter-on-quarter (q-o-q) - and significantly, 16 per cent lower than the August 2020 peak Rs 56,000 per 10 gram.

“Slide in prices below Rs 50,000 per 10 gram removed a psychological barrier for the consumers and spurred bargain buying and wedding-related accumulation, releasing pent-up demand,” Somasundaram added.

Investment demand

Indian retail gold investment demand also improved for a third consecutive quarter. Bar and coin demand grew 34 per cent y-o-y to 37.5 tonnes – the strongest first quarter in India since 2015. Meanwhile, recycling fell by 20 per cent to 14.8 tonnes in the March 2021 quarter.

Going ahead, the re-imposition of lockdown and mobility curbs in the backdrop of second wave of the Covid pandemic in the country will curtail festivities and dent investor sentiment, WGC feels. All this, it believes, will impact gold demand ahead of the wedding season.

“Digital and omni-channel retail strategies developed over the last year by many players may cushion the drop unlike Q2 2020 but the current crisis is beyond just economics and logistics, therefore, sentiment may be affected till large scale vaccination is achieved,” WGC said.

ETF outflow 

The March 2021 quarter saw 71 per cent drop in investment demand at 161.6 tonne compared to 549.6 tonne in the same quarter of 2020, WGC said, which was mainly on account of hefty outflows from gold ETFs that lost 177.9 tonne in the first quarter compared to 299.1 tonne in the previous corresponding quarter, as higher interest rates and a downward price trend of the precious metal weighed on investor sentiment.

“As countries around the world continue their recoveries, economies have started to cautiously re-open. This led to an encouraging return in consumer confidence in the March quarter, as illustrated by the stellar rise in gold jewellery demand. Conversely, having seen investors take shelter in gold from the initial impacts of COVID-19, March quarter saw a sell-off in the gold price as confidence in economic recovery grew and US interest rates rose sharply,” said Louise Street, senior markets analyst at WGC.

Meanwhile, bar and coin investment globally moved up 36 per cent YoY to 339.5 tonne during the quarter under review, led by buying at lower price levels coupled with expectations of inflationary pressures. The value of jewellery spending reached $27.5 billion – the highest first quarter since Q1-2013 and 25 per cent above the five-year quarterly average of $22.1 billion, WGC said.