As consumers continue to reel under the shadow of the Covid-19 pandemic, its direct impact is being felt on the global demand for gold. As per the latest Gold Trends Report, from the World Gold Council (WGC), the demand for gold has taken a double digit beating. While the demand in Q3 of 2020 alone was 892 tonnes, the total demand for gold in the nine months until September 2020 stood at 2,972.1 tonnes—10% lower compared to the same period in 2019.

However, the U.K.-based market development organisation for the gold industry highlighted that while overall demand for gold declined, the quarter saw significant growth in gold’s investment demand which jumped an annual 21%. WGC noted that investors globally bought 222.1 tonnes of gold bars and coins—an annual growth of 49%.

An additional 272.5 tonnes was bought through gold-backed exchange traded funds (ETFs.) Year-to-date, gold ETFs have increased their holdings by a record 1,003.3 tonnes. The global holdings of gold ETFs stood at 3,880 tonnes at the end of September.

However, the combination of continued social distancing restrictions in many markets, the economic slowdown, and a record high gold price in many currencies proved too much for many jewellery buyers. And, demand for gold jewellery declined by an annual 29% at 333 tonnes. While China and India accounted for the largest volume declines, weakness was global.

According to Louise Street, lead analyst at WGC’s market intelligence group, these combination of factors could continue to exert pressure on the gold market. “We believe that this trend will likely continue for the foreseeable future,” says Street.

However, looking at the investor landscape, there was further record inflows into gold-backed ETFs in Q3, taking the global total to a record high. “It was equally encouraging to see gold’s role as a safe-haven for retail investors shine through this quarter, as people continue to seek stability in volatile markets,” Street adds.

In India, the overall demand for gold in Q3-2020 stood at 86.6 tonnes—30% lower than 123.9 tonnes in the same quarter of 2019. However, gold jewellery demand staged a modest recovery from its Q2-2020 record low, but remained well below 2019 levels. Quarterly demand was 48% lower annually at just 52.8 tonnes, compared to 101.6 tonnes last year.

As the local gold price breached ₹50,000 per 10 grams—a major milestone for India—the impulsive purchases were curtailed in favour of needs-based buying. Some sort of a respite lay in the fact that the weak picture for jewellery demand did not translate into a surge of selling by Indian consumers.

The pandemic also saw Indian bar and coin demand increase by an annual 51% to 33.8 tonnes in Q3-2020, compared to 22.3 tonnes in Q3-2019. However, for the nine months ending September 2020, the demand remained depressed at 81.6 tonnes—a decline of 19% on an annual basis.

The silver lining was, however, India’s rural economy, which is normally responsible for about 60% of the country's annual gold demand. On the back of good monsoon and higher crop yields, Indian rural economy performed particularly well. According to the WGC report, this helped push up demand for gold bars and coins, outside of the urban areas.

Somasundaram PR, managing director, India, WGC, points out that the several months of lockdown which India witnessed led to a rapid rise in digital engagement. This digital push was also used by some top Indian jewellers to woo buyers. Moreover, digital platforms selling allocated gold through wallets also recorded sharp rise in volumes, along with significant activity in gold ETFs following a prolonged period of quiescence.

Looking ahead, Somasundaram argues that typically an upswing in gold demand is witnessed in the fourth quarter on account of Dussehra, Dhanteras and other festivals, coupled with a busy wedding season post-harvest. “This year, a good monsoon notwithstanding, price and Covid-19 shadow will affect sentiment, though we can reasonably expect at least a part of the pent-up demand to surface,” he says. “But as weddings and festivities become low-key affairs, savings on other spends could be channelised into gold,” he adds.

Although experts like Somasundaram admit that while a sense of cautious optimism has returned among the trade stemming from the fact that the society is gradually learning to live with Covid-19, it is still a daunting task to predict what the full picture for gold demand in India would look like. And with too many disruptive factors at work, the picture, after all, might not be that pretty.

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