India’s gold consumption increases by 37% in Jan-Mar 2021

KOLKATA: India’s gold consumption in the first three months of 2021 increased by 37% from the year-ago period to 140 tonnes, coinciding with a drop in Covid-19 infections which encouraged buyers to step out and shop.

But the momentum has fallen in the year’s second quarter as the second wave of infections sweeps across the country, necessitating lockdowns and stricter restrictions and affecting consumer sentiment, according to the World Gold Council’s (WGC’s) gold demand report released on Thursday.

“This is likely to impact wedding demand in Q2 2021. Digital and omni-channel retail strategies developed over the last year by many players may cushion the drop unlike Q2 2020 but the current crisis is beyond just economics and logistics, therefore, sentiment may be affected till large scale vaccination is achieved,” said WGC India managing director Somasundaram PR.

He said, “The next eight weeks are very critical. If the Covid cases are arrested and vaccination drive picks up aggressively, then the consumer confidence will be back with a bang. If that happens, then consumption of gold in the country in Q3 and Q4 will be higher than last year.”

In Q3 of 2020, India had consumed 86.6 tonnes of gold, while in Q4 it was 186.2 tonnes.

In Q1 of 2021, total jewellery demand was up by 39% from a year ago to 102.5 tonnes. Total investment demand for Q1 2021 increased by 34% to 37.5 tonnes in comparison with Q1 2020. Total gold recycled in India in Q1 2021 was 14.8 tonnes compared with 18.5 tonnes in Q1 2020, a drop of 20%.

Net bullion import in the first quarter of 2021 was 301 tonnes, up 262% from 83.1 tonnes in Q1 of 2020.

The WGC India chief attributed the 39% y-o-y growth in gold jewellery demand to a combination of factors, including softening gold prices, improved consumer sentiment following the sharp pick-up in economic activity, and return of social activities like weddings.

The average domestic gold price of Rs 47,131 per 10 gm in the first quarter of 2021 was 14% higher y-o-y but 6% lower q-o-q, and 16% lower than the August 2020 peak of Rs 56,000 per 10 gm. The slide in prices to below Rs 50,000 per 10 gm removed a psychological barrier for consumers and spurred bargain buying and wedding-related accumulation, releasing pent-up demand.

Indian retail gold investment demand also improved for the third consecutive quarter. Demand for gold bars and coins grew 34% y-o-y to 37.5 tonnes, making for the strongest first quarter in India since 2015.

A reduction in customs duty on gold, together with an appreciating rupee throughout much of the quarter, helped lower prices in rupee terms and presented significant buying opportunities for retail investors. Small bars (of 50g and 100g denominations) were reportedly hugely popular in Q1.

Robust consumer demand combined with stock building among gold traders ahead of key festivals, including Akshaya Tritiya in May, were the primary drivers of the strong rise in gold imports. Meanwhile, recycling fell by 20% to 14.8 tonnes in the first quarter.

“We are unable to quantify the impact on full year gold demand as we do not have sight of several critical factors currently at play,” the WGC India chief said.

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