Jul 30, 2020

India's Q2 Gold Jewellery Demand Falls 74% to Historic Low of 44 Tonnes: WGC

Indian Q2 jewellery demand fell 74% year-on-year to 44 tonnes -- the lowest quarterly total due to the nationwide lockdown, lost festival demand and the higher gold price, according to the World Gold Council’s (WGC’s) latest Gold Demand Trends report.

India’s H1 jewellery demand was down 60% to an all-time low of 117.8 tonnes. The WGC report noted that the strict lockdown imposed in late March ran through until mid-May, encompassing the all-important gold buying festival of Akshaya Tritiya – one of the most auspicious days for buying gold in India. This year, however, the country-wide lockdown meant that physical store sales were not possible, and only those retailers with an online presence were able to cater to demand. Sales were trivial in comparison with the previous year, it added.

In a virtual press conference, Somasundaram PR, Managing Director, India, World Gold Council, said, “ In mid-June when the lockdown opened in some select cities, people started buying gold jewellery and there was some activity. If there is a window of opportunity, there is an upsurge in latent demand.”

The report said that June saw a further improvement, with the release of some pent-up demand. However, a lack of weddings and auspicious days in the month, along with recurring lockdowns in certain regions and the high and rising gold price, prevented a meaningful recovery in demand.

Somasundaram noted that it wouldn’t be prudent to forecast for Q3 and Q4. He outlined some positives: agriculture will flourish due to good monsoons, and shops are opening, also if a vaccine is invented then consumers may be more confident of stepping out.Gold jewellery buying is linked to social and religious functions so, we are cautiously optimistic for Q4, which may include rescheduled weddings.  He added that on the negative side, the high price of gold may be a deterrent -- it has risen 30% this year -- as well as a large number of the workforce have lost their jobs, so that could inhibit jewellery buying.

“We may also see a spike in collatralised gold loans against jewellery. But India may surprise us all -- it all depends on Covid and reform measures that go with it - because at the end of the day,  it's the consumer buying behaviour that provides stability to the gold market,” Somasundaram added.

According to the report, India’s GDP growth has been on a downward trajectory since Q1 2019 and this was accentuated by the outbreak of Covid-19. Economic slowdown, job losses and restrictions on store operations meant consumers became more cautious in opening their wallets to buy gold.

According to a Reserve Bank of India (RBI) survey, the Consumer Confidence Index fell to a historic low of 63.7 in May from 85.6 in March, and the one-year ahead confidence index also recorded a sharp fall. Discretionary spending on gold jewellery was further quashed by local domestic gold prices – the average domestic price for Q2 was Rs.46,381/10 gm – 44% higher year-on-year, WGC reported.

While sales via digital channels are still nascent, jewellery retailers are increasingly implementing an omni-channel strategy to boost sales, WGC added. “Naturally, online buying convenience played a significant part in consumer behaviour during lockdown, as we saw Gold ETFs grow after being dormant for many years. Digital gold too saw significant activity though volumes are yet negligible in the overall demand scenario,” Somasundaram said.

Overall demand for gold in India for Q2 2020 was at 63.7 tonnes, down by 70% as compared to overall Q2 demand for 2019 (213.2 tonnes).

The value of jewellery demand was Rs.18,350 crore, down by 63% from Q2 2019 (Rs. 49,380 crore).

India’s total investment demand for Q2 2020 at 19.8 tonnes was down by 56% in comparison to Q2 2019 (44.5 tonnes). In value terms, gold investment demand in Q2 2020 was Rs.8,250 crore, down by 37% from Q2 2019 (Rs. 13,040 crore).

Total gold recycled in India in Q2 2020 was 13.8 tonnes, down by 64% compared to 37.9 tonnes in Q2 2019. Total gold imports in India in Q2 2020 was 11.6 tonnes, down by 95% compared to 247.4 tonnes in Q2 2019.

Global sales

WGC informed that China’s Q2 jewellery demand was down 33% year-on-year at 90.9 tonnes. Gold jewellery demand in the US broke down from its gradual uptrend over recent years, falling a hefty 34% year-on-year to 19.1 tonnes, the lowest quarter in WGC’s series.

Meanwhile, severe losses across Middle Eastern markets resulted in a 69% drop in Q2 demand for the region, down to 13.6 tonnes. The UAE suffered the most drastic year-on-year decline, down 86% to 1.3 tonnes, as market lockdown eradicated tourist purchases, while domestic demand was quashed by high gold prices, job losses and the weak economic environment.

Gold jewellery demand in Europe also fell to a new all-time low: Q2 was down 42% year-on-year at just 8.2 tonnes.

Inflows into gold-backed ETFs (gold ETFs) accelerated in Q2, taking H1 inflows to a record-breaking 734 tonnes. First half inflows surpassed the previous annual record from 2009 of 646 tonnes and lifted global holdings to 3,621 tonnes.

Investment in gold bars and coins slowed sharply in H1 2020, down by 17% to 396.7 tonnes – an 11-year low.

Central banks bought 233 tonnes of gold during H1, 39% below 2019’s record level. Buying has become more concentrated, with fewer banks adding to reserves so far in 2020.

Somasundaram concluded, “India’s Covid journey in H2 will chart the course and pace of economic revival of which gold demand is an integral part. A sense of optimism is developing amongst trade, however, that, by Dhanteras, covid-related disruptions may matter less as society learns to live with it, with a possible upside following some positive news on Covid treatment. This should spur consumer confidence and jewellery demand. Fast rising gold prices could act as headwinds though. Price is currently a life-time high of over Rs. 50,000/10gms, a key milestone and response is naturally mixed – with content investors and wary consumers! To put it in perspective, gold prices have risen by 60% since January 2019 and 20% since January 2020; income growth or expectation have not kept pace with this.

“As we are still in the midst of the crisis without clear sight of many variables on consumer behaviour, prices or length of the disruption, we will not be able to quantify the impact on the full year gold demand in India.”

Credit: Bhavesh Jewellers