India's gold demand fell 30%, however “cautious optimism” could return
An employee arranges one kilogram of gold bars for a photo in Bangkok, Thailand on Jan. 13, 2016.
Dario Pignatelli | Bloomberg | Getty Images
SINGAPORE – India's gold demand fell 30% in the previous quarter, but a sense of “cautious optimism” has returned to the market, according to the World Gold Council.
India is one of the largest gold markets.
The jewelry demand in India fell from July to September year-on-year by 48% to 52.8 tons, after around 101.6 tons in the previous year, the organization said in a report. However, the demand for gold as an investment rose 52% year over year to 33.8 tons.
Total gold demand – including jewelry and investments – fell in the quarter through September, but the decline was less than the 70% decline in the past three months, Somasundaram PR, executive director for India at the World Gold Council, said in a statement.
"This is partly due to the loosening of the lockdown and some low prices in August, which gave the discerning a small window of opportunity to buy," he said.
The precious metal plays an important role in Indian culture – it is considered cheap to buy gold on festive occasions or to give away gold jewelry at weddings. It is also seen as a symbol of wealth and a safe investment.
Somasundaram stated that demand for gold tends to be relatively low between July and September due to seasonal factors like monsoons and adverse times. The decline in gold jewelry demand was also due to the cancellation or postponement of many festivals and weddings due to the coronavirus pandemic that has infected more than 8 million people in India.
"On the other hand, gold's safe haven attributes and the expectation of price spikes have paved the way for investment demand for bullion and coins to rise," he added.
The combination of ongoing social restrictions in many markets, the economic impact of lockdowns, and the all-time high price of gold in many currencies proved to be too much for many jewelry buyers.
World Gold Council
Typically, gold demand spikes in the three months between October and December due to festivals like Dussehra and Dhanteras – the first day of the Diwali festival – as well as a busy wedding season. However, high gold prices and the effects of the pandemic will affect sentiment and demand. Covid-19 triggered lockdowns in India that worsened growth prospects and left millions unemployed.
Although pent-up demand is expected to emerge in the current quarter, according to the World Gold Council, it is unlikely that a decline in gold demand for India will be offset throughout the year.
Somasundaram said a "sense of cautious optimism has returned" as people gradually learn to live with Covid-19.
"However, since we are still suffering from the effects of the pandemic and fears of a second wave of infections, with no clear evidence of many variables of consumer behavior, volatile prices or the duration of the disruption, we cannot fully quantify the effects." Year gold demand in India besides saying the demand could be multi-year low, "Somasundaram said.
According to the World Gold Council's gold demand report, global gold demand fell 19% year over year to 892 tons in the July-September quarter – the lowest quarterly total since the third quarter of 2009.
For the first time since the end of 2010, the central banks sold 12.1 tons of gold in net sales in the July-September quarter. This was mainly driven by the central banks in Uzbekistan and Turkey, while six others, including the Reserve Bank of India, slightly increased their gold reserves, according to the report.
Although aggregate gold demand fell, investment demand rose sharply 21% in the three months from a year earlier as investors bought gold bars, coins and gold-backed ETFs.
Gold is seen as a safe investment to put money into when the markets are facing uncertainty or volatile, which was the case during the pandemic and before next week's US presidential election.
However, buyers shied away from buying gold jewelry due to a record price for the precious metal in many currencies and the economic uncertainties they face due to the global recession triggered by the pandemic. The demand for jewelry decreased by 29% compared to the previous year.
Spot gold surged above $ 2,000 in August before moving back to the $ 1,900 level in recent weeks. It traded at around $ 1,869 an ounce at 1:51 p.m. on Friday afternoon. HK / SIN.
The effects of the pandemic are still being felt in the global gold market, according to Louise Street, Market Intelligence at the World Gold Council.
"The combination of ongoing social restrictions in many markets, the economic impact of lockdowns, and all-time high gold prices in many currencies proved too much for many jewelry buyers," Street said in a statement. "We believe this trend will continue for the foreseeable future."
Total gold supply declined 3% year over year to 1,223.6 tonnes in the July-September quarter, driven by restrictions related to coronavirus in mines in the first half of the year.