Attractive stock markets may keep investors away from gold: Analysts

Demand for gold in India jumped 19.2 per cent in the April - June 2021 quarter to 76.1 tonnes, suggests the latest report from World Gold Council (WGC)

Attractive equity markets and volatile gold prices may prove to be a deterrent for an investment in the yellow metal in the second half of 2021, suggests the latest report from World Gold Council (WGC). That said, the upcoming festival season, including Dhanteras and the wedding season in the October – December quarter of 2021, WGC believes, may see an uptick in demand for the yellow metal.

“Consumer investment in gold increased in the second quarter of 2021, but some investors were less bullish. Outlook for the second half of 2021 is yet uncertain, as consumer confidence and business response are subject to the impact of a looming threat of third wave of Covid and the pace of economic recovery,” said the WGC report.

Over the past one year, Indian equity indices – the S&P BSE Sensex and the Nifty 50 – have risen around 38 per cent and 41 per cent respectively. The rally in the mid-, and small-caps has been sharper with both these indices moving up 67 per cent and 105 per cent, respectively during this period, data show. And with the US Federal Reserve (US Fed) staying dovish in its latest meeting, analysts expect global equity markets to remain buoyant at least for now. 

“I do not see any major stress points for the Indian stock markets at least till December 2021-end. The outcome of the recent US Fed meet and the ample liquidity sloshing around will keep markets in good spirit. That apart, economic recovery and a good monsoon will keep markets afloat. In this backdrop, investment in safe haven assets like gold will take a backseat,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.

Gold: Global snapshot

Average quarterly gold prices have moved up just 6 per cent YoY to $1,816.5 an ounce in the June 2021 quarter, as per WGC data. Analysts at Credit Suisse Wealth Management maintain a neutral view on gold prices and see them around $1850/$1750 per ounce in the next 3-months/12-months, respectively.

Gold demand

Meanwhile, despite lockdown across major cities across the country due to the second wave of the Covid pandemic and aided by low base of the previous corresponding period, the demand for gold in India jumped 19.2 per cent in the April – June 2021 quarter to 76.1 tonnes, WGC said. At the global level, however, the demand for gold during the period under review, according to WGC’s estimates, dipped marginally to 955.1 tonnes versus 960.5 tonnes in the previous corresponding period. 

“Continued global economic recovery should support consumer demand for global gold jewellery throughout 2021, although continued Covid disruption in some markets – most pertinently, India – will provide a headwind,” WGC said.

Back home, in value terms, gold demand stood at Rs 32,810 crore, an increase of 23 per cent compared to the previous corresponding period in 2020. Total jewellery demand in India in the June quarter was up by 25 per cent at 55.1 tonnes as compared to 44 tonnes in the June 2020 quarter.

“Unlike the previous year when a national lockdown took businesses by surprise, this quarter was relatively better as businesses were more prepared. The overall, gold demand in India in the first half of 2021 was 216.1 tonnes year-on-year (YoY). Though it is still a multi-year low, it reflects an underlying demand momentum that will likely support a sharp spike in demand once normalcy is restored on the Covid front,” said Somasundaram PR, Regional chief executive officer for India at WGC.

Gold: Indian perspective