Jewellery demand up 60 per cent on Post Covid recovery
By K Raveendran
Interesting trends are emerging in the performance of gold as an asset
class as India is recovering from the impact of Covid pandemic.
Although some of the basic fault lines continue to nag, there is a
perceptible pick-up in demand, such as the bellwether automobile
industry, with pent-up demand translating into significant numbers in
terms of sales.
The Reserve Bank of India was the largest buyer of gold among all
central banks in the third quarter of 2021. India’s gold reserves grew
by 41 tonnes to 745 tonnes during this period. It also marks a slight
increase in the pace of buying by the RBI. In fact, central bank
demand in general has been one of the highlights of the gold market
this year. India’s gold purchases have helped arrest a slowdown in
acquisitions by other central banks. And the trend is seen set to
continue in the coming quarters. According to estimates, 2021 looks
set to see the biggest annual increase in India’s official gold
reserves since 2009.
A similar trend is noticed in the demand for domestic investment in
terms of bars and coins. The third quarter bar and coin investment
increased 27 percent year on year to 43 tonnes on pent-up demand and
the gold price dip. Aligned with jewellery consumers, bar and coin
investors responded to the sharp price dip, and lower average
quarterly price, by adding to their holdings. The price effect was
heightened by the release of pent-up demand as lockdown restrictions
eased. Although investors were tempted by equity market strength, with
Sensex touching all-time highs they have remained wary of possible
corrections amid the high valuations. This encouraged investment in
gold for diversification purposes.
According to World Gold Council, Jewellery demand in India in the
third quarter increased approximately 60 per cent both on a quarterly
and yearly basis due to strong pent-up demand, a rebound in economic
activity and lower gold prices. Having been locked down for much of
the second quarter to deal with the severe second wave of Covid,
jewellery demand bounced back sharply in the third quarter. An
acceleration in the vaccination programme and a strong end to the
monsoon season further boosted consumer sentiment.
Occasion-related gift buying witnessed a strong comeback and demand
was buoyant ahead of the two-week inauspicious Shraddh period which
fell at the end of September. Retailers anticipating strong demand
during the fourth quarter wedding and festive season built up their
inventories in preparation amidst reports that the quarter has indeed
got off to a brisk start. The season, which has a higher number of
auspicious wedding days, bodes well for jewellery demand for the
remainder of the year, especially because the good monsoon is expected
to support rural incomes. The only rider is the potential for further
waves of Covid and lockdowns, which as of now appear to have ebbed
significantly.
An interesting trend in the gold jewellery demand has been a new
regional shift. At a regional level, Northern India outperformed the
South as some Southern states, notably Kerala, were impacted by higher
Covid cases and restrictions on store operating times. But this is
expected to change in the weeks to come as the situation is
continuously improving in the affected states.
The government has introduced mandatory hallmarking, which the
industry is smoothly adapting to. This is expected to ultimately
improve transparency and give consumers greater confidence in the
purity of the gold they buy. Another significant development is the
launch of digital platforms, further opening the channels for gold
investors. The launch of digital gold platforms by retailers such as
Titan, Kalyan and Senco Gold provides investors with a convenient way
to make systematic investments in gold for as low as Rs 100.
Another notable industry development is the continuation of policy
reforms related to domestic spot gold exchange and international
bullion exchange. During the third quarter, the Securities and
Exchange Board of India (SEBI) approved the framework for a domestic
spot exchange. Meanwhile, the International Financial Services Centres
Authority (IFSCA) launched the India International Bullion Exchange
(IIBX) on 1 October 2021. These exchanges, intended to empower bullion
banking and establish India as a major bullion trading hub, may also
help with the successful implementation of the gold monetisation
scheme and the development of gold-backed products. (IPA Service)
