India gold demand in 2020 may fall to 26-year low

Photo: Gold bars. For Representational Purposes Only.

By Deepak Sharma

New Delhi: The demand for gold in India, the world’s second-largest buyer of the bullion, could fell sharply in 2020 to the lowest level in more than two decades, as the decline in disposable income following the government implemented lock down to check the spread of COVID-19 and a record high prices may discourage purchases of the yellow metal.

According to the World Gold Council (WGC), India’s annual consumption of the gold, impacted by the economic slowdown and record-high prices, could decline to less than 450 tonnes, a level last seen in 1994, when India’s demand for the bullion, mainly used in jewellery, ornaments, and also for investments, touched 415 tonnes.

According to the data provided by the council, India’s gold consumption in the first half of 2020 plunged 56 per cent on-year to 165.6 tonnes. Meanwhile, the Coronavirus-triggered lock down also slashed demand by 70 per cent in the June quarter to 63.7 tonnes, the lowest in more than a decade.

In terms of value, India’s gold demand during the second quarter of this year was Rs 26,600 crore ($3.55 billion), down by 57 per cent compared to Rs 62,420 crore ($8.33 billion) in the corresponding period of 2019.

The countrywide lock down initiated by the government in the last week of March this year resulted in millions of Indians losing their jobs or were forced to take a pay cut. This has severely impacted economic sentiments and drags down demand for everything from soap to high-end cars in the country

The purchase of jewellery in India fell drastically during the lock down, which was extended beyond June quarter, thus adversely impacting wedding season as well as key festivals such as ‘Akshaya Tritiya‘ by forcing shoppers to stay indoors.

The total demand for jewellery in India for the second quarter of 2020, during the key gold-buying season, decreased by 74 per cent at 44 tonnes compared to 168.6 tonnes in the same quarter of 2019.

Jewellery demand, in value terms, fell by 63 per cent during the April-June this year at Rs 18,350 crore ($2.45 billion) from Rs 49,380 crore ($6.6 billion) in the corresponding period last year.

Lock downs are continuing in many parts of the country, and chances of economic recovery are very less. And it is going to be very challenging, and the demand could fall to its lowest, what most Indian have ever seen, said the council.

The total investment demand increased significantly by 98 per cent to 582.9 tonnes during the quarter, compared to 295 tonnes in the same quarter of 2019, WGC’s India Operations managing director Somasundaram PR said.

According to Somasundaram, for gold demand to survive, the economy must do well. “There is also a lot of anxiety among people regarding incomes and a lot of people from the unorganised sector are not doing much business. Whatever savings people have, they will put it into the businesses or pledge gold to raise money. They will not put that into buying gold.”

Lower demand from India could limit the rally in global prices, which hit a record high earlier this month, although it could also reduce India’s trade deficit and support the ailing rupee.

Over the past year, gold prices have been rising continuously and breached the previous record high price of $1,920.30 an ounce to touch an all-time peak of $1,943.

Higher prices have negatively impacted consumer demand but boosted investment appeal for the metal. As per WGC data, the total investment demand increased significantly by 98 per cent to 582.9 tonnes during the quarter, compared to 295 tonnes in the same quarter of 2019.

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