India gold demand drops 70% in Q2 to hit 11-year low on price, Covid impact

World Gold Council data shows demand dropped to 63.7 tonnes in the April-June quarter this year. Back in 2009, demand had plunged to as low as 40 tonnes following Lehmann crisis

India’s gold demand declined by a staggering 70 per cent in the three months to June, hitting the lowest quarterly figure in 11 years due to the closure of retail shops and factories following the Covid-induced nationwide lockdown during most of the period. A sharp increase in the price of the metal fuelled the downtrend.

Data compiled by the World Gold Council showed India’s gold demand dropped to 63.7 tonnes in the April-June quarter this year, from 213.2 tonnes in the corresponding quarter last year. The last time that demand had plunged so badly was during one quarter in calendar 2009, immediately after the Lehman crisis rocked the world financial markets. At that time the consumption figure even lower at 40 tonnes.

While jewellery demand declined by 74 per cent to to a mere 44 tonnes in the second quarter of the current calendar year as against 168.6 tonnes in the comparable quarter last year, investment demand decline by 56 per cent in volume term to 19.8 tonnes from 44.5 tonnes in the same period last year.

“The nationwide lockdown and high prices acted in combination to keep India’s gold demand to a record low at 63.7 tonnes during April-June quarter. Barring of a couple of days, retail jewellery stores remained shut for most of period. Thus, the April-June quarter was a washout for India’s gold demand,” said Somasundaram P R, Managing Director, India, World Gold Council, while releasing Gold Demand Trend report for the quarter.

Demand for jewellery dropped by 74 per cent in an atmosphere of fear and uncertainty, where weddings were either being postponed or turning out to be uncharacteristically quiet and private. Investment demand fared relatively better, as gold’s safe haven attributes and perhaps some price increase anticipation attracted high net worth individuals (HNIs) and investors.

Naturally, the convenience of buying online played a significant part in consumer behaviour during lockdown, as gold exchange traded fund (ETFs) grew after being dormant for many years. Digital gold too saw significant activity though volumes are yet negligible in the overall demand scenario. 

 

“Sales trends during the window of opportunity afforded by relaxation of lockdown in select cities, do point to healthy latent demand that should surface once Covid turbulence is behind us,” said Somasundaram.

Perhaps, for the first time in recent memories, the WGC did not forecast India’s annual gold demand due to possibility of a change in consumer behaviour and return of demand with “V” or “W” shape and so much of uncertainty.

Logistical issues and poor demand hammered down imports by 95 per cent to a mere 11.6 tonnes. Dore import declined to 3.5 tonnes for Q2 of calendar 2020 as against 75.5 tonnes for the same period last year.

Most importantly, Indian consumers bought less gold jewellery during the April-July quarter due to the closure of shops. WGC data showed a negligible 0.6 tonnes of gold ornaments were melted to recover gold during the second quarter of calendar 2020 which took total supply decline by 91 per cent to 26 tonnes in April-June quarter 2020 compared to 287.9 tonnes in the same quarter last year.

Trading currently at Rs 53,140 per 10g, standard gold prices have risen by 60 per cent since January 2019 and 20 per cent since January 2020; income growth or expectation have not kept pace with this. 

“As we are still in the midst of the crisis without clear sight of many variables on consumer behaviour, prices or length of the disruption, we will not be able to quantify the impact on the full year gold demand in India,” said Somasundaram.

Meanwhile, a sense of optimism is developing among traders, that by Dhanteras, covid-related disruptions may matter less as society learns to live with the malady, and with a possible upside following some positive news on Covid treatment. This should spur consumer confidence and jewellery demand. Fast rising gold prices could act as headwinds though, he added.