Commodities & Currency

India: It’s time for Gold to shine

India gold market huge surge in 2022

According to a recent report published by the World Gold Council (WGC), India saw a huge increase in gold consumption in 2021, which would probably continue to rise in 2022. Indian gold market sold 797.3 tonnes of goods in 2021, a 78 percent increase from 446 tonnes in 2020. Further, the predicted consumption for 2022 stands at 850 tonnes.

India which is the second largest gold consumer in the world, had doubled demand for jewellery, reaching 611 tonnes from 316 tonnes in 2020, a 93 percent increase. In terms of value, the jewellery consumption in 2021 was worth Rs. 2,61,140 Crore compared to Rs. 1,33,260 crores in 2020.

“The easing of lockdown restrictions last year and the successful progress of the vaccination programme, combined with economic growth, significantly changed consumer sentiment, triggering spending and investments across the board during festivals like Dussehra and Dhanteras,” said Somasundaram PR, WGC Regional CEO for India, to the Deccan Herald.

As the government is trying to recover the economy from the pandemic, this rise is threatening to increase the trade imbalance and weaken the country’s currency. The report suggests the government to declare a tariff rejig on the yellow metal in the in order to curb its illegal commerce, which often rises in proportion to imports.

The report suggests the reasons for the increase to be economic growth and central bank buying. It states, “Demand for gold in the consumer-driven jewellery and technology sectors recovered throughout the year in line with economic growth and sentiment, while central bank buying also far outpaced that of 2020. Investment demand was mixed in an environment of opposing forces: high inflation competed with rising yields for investors’ attention.”

The World Gold Council stated in the study that gold consumption nearly doubled from a year earlier to a record 343.9 tonnes in the December quarter, owing to strong retail purchases during the important Hindu festivals of Dussehra and Diwali.

According to Somasundaram, weddings boosted demand in urban regions in 2021, while heavy monsoon rainfall boosted crop output in rural areas.

“Indian consumers are more accepting of the current pricing level,” he said in the Mint.

As per another report by WGC, in 2021, India paid a record 55.7 billion USD on gold imports, more than doubling its tonnage from the previous year. The cost for gold imports in 2021 also exceeded the previous high of 53.9 billion USD in 2011. Retail customers benefited from gold’s price decline, and there was considerable pent-up demand for weddings in October of last year.

“Rising incomes are one of the biggest single drivers of long-term gold demand. This suggests that as India’s economy grows, demand for gold should increase,” the report said.

India increasing its consumption would support global prices, but it may also deepen India’s trade imbalance and put pressure on the struggling rupee.

“Muted wedding celebrations due to restrictions mean more savings and that money is flowing into gold,” Somasundaram said, as published in the Mint.

Due to the coronavirus outbreak, Indian authorities imposed different limits on wedding celebrations, and some people postponed nuptials until 2022, he added.

The current price for 10 grams (g) of gold is approximately Rs. 49000. The prices are down form the record-breaking highs of 2020. The price of gold peaked at Rs. 56000 per 10 g in Aug. 2020 before falling. 

The WGC report shows that Investment demand (demand for gold coins and bars) increased recently by 43 percent to reach 186 tonnes.

“We expect Indian investment demand to remain healthy as we head into 2022. It may receive support from higher inflation expectations and possible weakness in the rupee due to the widening trade deficit,” the report said.

According to reports, central banks accumulated 463 tonnes of gold in 2021, an increase of 82 percent over the previous year’s amount, bringing world holdings to a nearly 30-year high. The pace of purchases dropped in the second half of 2021, with a 22 percent year-over-year (y-o-y) decline in October to December.

Some experts say that 2022 will be a good year for the gold market but not a record one.

Sudheesh Nambiath, head of India Gold Policy Centre at IIM Ahmedabad said in an interview to the Business Standard, “Whenever Indian equity markets do well, the demand for gold picks up as well. We should expect a year of robust growth in demand. However, it might not turn out to be a record year. A lot will depend on the severity of the Omicron variant and whether we again witness the cycle of lockdowns and curfews.”

Related: Gold sets for bigger return in Covid 19: An Analysis

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