Statsguru: India's gold demand declines as prices shoot up amid Covid-19

As the global economy suffered due to the Covid-19 pandemic, the impact started showing up in gold, a commodity that can be considered its bellwether. Gold prices and demand have to a great extent been markers of the path where the economy is headed.

While gold prices started firming up in 2019 itself, the yellow metal became the costliest ever in history and touched $2,067/oz on August 6, 2020 (chart 1). Prices have softened to less than $2,000/oz now. Prices in India have also reached record levels (chart 2).

The pandemic also affected gold demand. India’s consumer demand for gold was less than a third of its position a year ago, as prices went up more than 50 per cent.

If we look from an individual consumer’s level, gold demand has been softening over the last few years in many countries, including major markets such as India, China, Russia and the US (chart 3).

While consumer demand took a strong hit, non-physical investment demand surged in an unprecedented manner. Usually, monthly contributions to equity mutual funds are way more than the money pumped into gold-backed exchange traded funds (ETFs). But in June and July 2020, gold ETFs commanded more money than equity mutual funds (chart 4).

This is evident from chart 5, which shows that investment into physical bars and coins was cut to half. In addition, the electronics and dentistry industry also showed lower demand in the June quarter.

Central banks in emerging markets did not rush to buy more gold in this crisis. But they have been expanding their gold reserves (chart 6).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines                    Source: World Gold Council