29

India is the second highest consumer of gold after China. But the global pandemic has put the segment under pressure. The country’s economically vulnerable situation has echoed in its gold market. Imports of gold dropped drastically (around 86% year-on-year) during June because of the dismal economic situation. Additionally, gold prices spiralled very fast during the last few weeks. It is a tough time for middle-class buyers who were thinking to invest in gold coins or buy jewelleries for personal purposes.  

With an increase in prices and no significant income accumulation in the economy - the Indian gold market might experience investment inertia. Additionally, it is likely to negatively impact the upcoming wedding season. Jewellery owners are cautious. On the contrary, the investors who were already saving their capital in gold are in luck as the rise in gold prices is good news for them.

Increasing price

For the first time, the price of gold reached a high point of `50,010 per 10 grams in India. During the first half of July, 2020, the price of gold rose to `49,348 per 10 grams. Gold has essentially been considered as a hedge against inflation and currency debasements.  Now, expectations of a government stimulus and low interest rates have increased the longing for gold. This has pushed the price up.

Price of gold jewelleries varies in different parts of India because of the changing excise duty, state taxes and making charges. Since the beginning of July, market analysts were expecting a sharp inclination in gold prices across India.

Annargha Uuttiya Chowdhuury, Director, Anjali Jewellers Private Limited told BE, “The physical gold market is totally different from the paper gold market. Since the markets have not recovered, it hardly makes a difference to what is shown on the MCX. The market is now at a complete halt due to the coronavirus situation. Even where stores have opened, the footfall is hardly there. When jewellers are trying to get customers to walk in, the government is again taking measures to implement temporary lockdowns. It is affecting the markets.”

Online trend

The World Gold Council (WGC) in a report titled 'Online gold market in India' informed that the disruptions caused by Covid-19 are forcing gold traders for re-evaluating their present business strategies. They are now more inclined towards the digital model or online platforms. During the lockdown, this can be a way to ensure sale without any physical contact. But Chowdhuury said, “Online sales are only a fraction of the total business which is generated in the brick and mortar stores. Moreover, if orders are coming in online, it is extremely difficult to execute them. The artisans are not being able to work due to lockdown restrictions. Additionally, courier services cannot work properly due to travel restrictions.”

Preserving the treasure

The Indian gold market might expect even lower demand in near future as people are in a saving mode. During the pandemic, many are worried about their medical expenses. It was estimated by few analysts that people could try to sell their gold to monetise it. But Chowdhuury stated, “We have not really seen any distress selling of gold. It is the last resort which people use as there is an emotion attached with gold. Due to the joint effort by the government and the private sector, a lot of the economic conditions have balanced. Maybe, it has not reached a point where a person needs to sell their existing physical gold.” Rather, the market seems to be more prone to preserve their gold, anticipating a prolonged economic distress. The rise in gold prices have also deterred many from selling their gold.

The World Gold Council (WGC) in its report titled 'Gold Mid-Year Outlook 2020: Recovery Paths and Impact on Performance' stated, "In the second half (of 2020), we expect consumer demand to remain soft due to reduced economic activity, concerns about increasing unemployment and income erosion. However, additional economic packages from the government and a forecasted positive monsoon season could help to soften the negative impact of an economic deceleration."