India's gold demand hits 25-yr low in 2020 amid lockdowns, high prices: WGC

Demand for gold in India in calendar year 2020 dropped to a 25-year low of 446 tonnes as compared to 690.4 tonnes in 2019, as per the latest report released by World Gold Council (WGC). “The last time the demand hit such levels was in 1995 at 462 tonnes,” said Somasundaram PR, managing director for India, World Gold Council.

Total jewellery demand, too, during the period under review in India slipped 42 per cent at 315.9 tonnes as compared to 544.6 tonnes in 2019. In value terms, jewellery demand in 2020 came in at Rs 133,260 crore – down 22 per cent as compared to 2019, WGC data show.

“India’s gold demand dropped by over a third in 2020 on the back of Covid-induced lockdowns and lifetime high prices. However, the drop was significantly lower when viewed in value terms, 14 per cent lower than 2019 as prices were up 34 per cent hovering around Rs 50,000/10grams for most past of the year," Somasundaram said.

December quarter revives hope

Easing of lockdown restrictions, festive period and the ensuing wedding season, however, revived demand hope and drew in jewellery demand worth 137.3 tonnes in the December 2020 quarter. This, WGC said, was the strongest quarter for gold demand in 2020. Investment demand also showed significant resilience, growing 8 per cent to 48.9 tonnes during the December 2020 quarter.

On an overall basis, gold demand in India during December 2020 quarter stood at 186.2 tonnes, down a marginal 4 per cent as compared to the previous corresponding period in 2019 (194.3 tonnes). In terms of value, however, the demand was 26 per cent higher at Rs 82,790 crore YoY as prices rose over the year.

Global view

For 2020, global demand came in 14 per cent lower at 3,759.6 tonnes, WGC said, and attributed the fall to the coronavirus pandemic that was the key driving factor behind weakness in consumer demand throughout 2020. This was the first time since 2009 that the global demand for the yellow metal on an annual basis slipped below the 4,000 tonne mark. Global gold-backed ETFs (gold ETFs) holdings grew by 877.1 tonnes during 2020, reaching record year-end holding of 3,751.5 tonnes.

Total annual gold supply also took a hit and was 4 per cent lower y-o-y (4,633t), the biggest fall since 2013. The drop, according to WGC, is mostly attributed to coronavirus-related disruption to mine production, which was offset by a marginal 1 per cent increase in recycling to 1,297.4 tonnes for 2020.

"The US dollar gold price returned 25 per cent in 2020 supported by investor demand. After reaching a record high in August across most currencies, the LBMA Gold Price dropped back to $1,762.55/oz in November-end, before recovering to close the year at $1,887.6/oz," WGC said.

During the December 2020 quarter, gold demand dropped 28 per cent y-o-y to 783.4 tonnes, an 11-year low, making it the weakest quarter since the midst of the global financial crisis in June 2008 quarter (Q2-2008). Gold jewellery demand in Q4 fell 13 per cent y-o-y to 515.9 tonnes, resulting in a full-year total of 1,411.6 tonnes, 34 per cent lower than in 2019.

“Going ahead, calendar year 2021 should be a good year for gold. Global markets are not fully factoring in the economic impact of Covid-19 yet. Once they start doing so, the demand for gold will likely be impacted as investors opt for safe haven assets like gold,” Somasundaram said.