India’s gold jewelry demand reached a new low of 315.9 tons in 2020, down 42% from a year earlier, due to the Covid-19 impact.
Globally the gold jewelry demand was down 34% on the year to 1,411.6 tons, while in China the demand fell 35% to 415.6 tons.
However, with the easing of lockdown restrictions from September and a reported steady reduction in Covid-19 daily cases, some positive signals of Indian economic recovery came through in October-December quarter, the World Gold Council said in its latest report.
Losses narrowed significantly in the last quarter, with demand just 8% lower year on year at 137.3 tons.
In local currency terms, the value of Indian gold jewelry demand reached a quarterly record of Rs610.6 billion, a sharp recovery from the 12-year low of Rs183.5 billion in annual Q2.
The average gold price for Q4 at Rs 50,195/10gm was 32% higher on the year but 2% lower on the quarter and 10% below the all-time high of nearly Rs56,000/10gm from early August. The correction in the local gold price to back below the key psychological level of nearly Rs50,000/10gm for much of December spurred bargain buying and pent-up demand.
Festivals and weddings in Q4 offered the traditional seasonal boost to jewelry demand, although it remained soft on a historical basis.
Resilient rural demand
Rural demand received a boost in the fourth quarter from a good monsoon. Furthermore, relatively low Covid-19 infection rates, higher minimum support prices for crops and expectations of higher Kharif food grain production also buoyed the rural economy.
Gold jewelry retailers in Tier2 and Tier 3 cities, where economic activity is more dependent on agricultural and allied activities, reported better volume sales in the quarter.
Despite the economic improvement in Q4, some indicators point towards the recovery being fragile and not yet broad-based. Bank credit growth remained relatively soft and Industrial Production shrank by 1.9% in November after two months of consecutive growth.8 This suggests that any continued quarterly improvement in jewelry demand is likely to be tentative.
Indian consumers remain sensitive to changes in the gold price – particularly at such historically high levels – and this could generate a rapid response to any price volatility, especially around the psychological Rs50,000/10gm level.