India's gold demand declined sharply in March quarter as prices surged

The India trend is contrary to global demand for gold, which went up by 34 per cent YoY to 1,234 tonnes, the highest since Q42018.

India’s gold demand fell sharply in the March quarter when the commodity’s prices rose and there were fewer days regarded auspicious to buy it.

Total demand in the first quarter of 2022 was down by 18 per cent to 135.5 tonnes, and jewellery demand was down 26 per cent to 94.2 tonnes, on a year-on-year (YoY) basis.

The trend was contrary to global demand for gold, which went up by 34 per cent YoY to 1,234 tonnes, the highest since Q4'2018. Global demand was led by an increase in investment demand, which went up in the quarter by 203 per cent YoY to 550.7 tonnes. In India, investment demand was up only marginally by 3 tonnes or around 5 per cent YoY as Indians prefer to sell old gold, both jewellery as well as coins, when prices are high rather than buying gold.

Domestic gold prices surged to almost Rs 55,000 per 10 gram in March, after hovering around Rs 49,000 in early January 2022.

As a result, the supply of scrap on net basis (after considering exchange of old gold for new jewellery) was 27.8 tonnes, up 88 per cent YoY in the March 2022 quarter, which is highest after September quarter of 2020.

“Global jewellery consumption lost momentum in Q1: demand was down 7 per cent year-on-year at 474 tonnes. The drop was largely due to softer demand in China and India,” said a report released by the World Gold Council (WGC) on Thursday.

The Ukraine invasion and surging inflation were key factors driving both, gold price and demand. Gold ETFs or exchange traded funds, however, had their strongest quarterly inflows since Q3'2020, fuelled by safe-haven demand. Their holdings jumped by 269 tonnes, more than reversing the 174 tonnes annual net outflow seen in 2021.

Investment in gold bars and coins was 282 tonnes in Q1'2022, down 20 per cent YoY. Renewed lockdowns in China and historically high local prices in Turkey were key contributors.

Outlook for India demand

“Demand in the second (April-June) quarter will receive support from festival purchases (Akshaya Tritiya – a key gold-buying festival – on 3rd  May and wedding season buying. Underlying consumer sentiment is improving, which should also prove supportive," according to the WGC report.

“Demand growth is reviving after a fall in the first quarter. Now Akshaya Tritiya buying is expected to be very good. And if the monsoon remains good as expected, then gold demand in 2022 will cross 800 tonnes,” said Somasundaram PR, Regional CEO, India at World Gold Council.

Last year in 2021 demand was 797 tonnes. With gold prices now stabilising at higher levels, he has advocated a cut in gold import duty. “Now with prices higher, the reduction in taxes on VAT will not hit government revenue,” he said.

On the flip side, however, demand could face headwinds should there be further increases – or heightened volatility – in the gold price, while broad-based inflation may also curb demand by squeezing disposable incomes, the WGC report said.

HIGHLIGHTS

• Sale of old gold in India up 88% in Q1'CY22
• Total domestic gold demand fell 18% in Q1
• Global gold demand at 3-year high following sharp rise in investments
• China’s lockdown weighed on global demand for gold coin and bars