Economic recovery likely to boost gold demand in India

Gold demand appears to be positive in India as the consumer sentiment is likely to recover in 2021, from its dismal performance due to the coronavirus pandemic-related disruptions and volatile price movement, according to a report by the World Gold Council (WGC).

Initial data about the Dhanteras festival in November suggest that while jewellery demand was still below average, it had substantially recovered from the lows seen in the second quarter (April-June 2020) of last year, according to the report.

The report,  titled 'Gold Outlook 2021- Economic recovery and low interest rates set the tone', also said although global economic growth is likely to remain anaemic relative to its full potential for some time, gold's more stable price performance since mid-August may foster buying opportunities for consumers.

It said the economic recovery is likely to be realised in countries like China, which suffered heavy losses in early 2020, before the spread of the pandemic is controlled more effectively than in many western countries.

However, with the global economy operating well below potential and gold prices at historical high levels, consumer demand may remain subdued in other regions, it added.

World Gold Council managing director (India) Somasundaram P R said, "The year 2020 turned out to be unprecedented in the scale and degree of uncertainty.

“Gold naturally was one of the best performing assets for investors driven by high risk, low interest rates and price momentum."

He, however, added that lifetime high prices in all currencies and lockdowns in key global markets pushed consumer demand to its lowest levels.

Somasundaram also said 2021 will continue to see an interplay of many of these factors but underpin a favourable environment in India for both gold price and demand.

"The sharp rise in price of gold by 20 per cent has now reset consumer expectations about a new normal.

"Higher risk of stock prices driven by liquidity, low interest rates, coupled with the inevitable return of family and social occasions and the experiential value of gold buying, will release pent-up demand," he said.

He added that innovative marketing efforts of big players and digital interventions are here to stay.

"All-round efforts to enhance trust in the jewellery industry to mitigate price impact will shape millennial behaviours positively towards gold."

The report also noted less supply disruptions due to recovery expected in mine production this year after the fall seen so far in 2020.

Production interruptions peaked during the April-June 2020 quarter and have since waned, it stated.

While there is still uncertainty about how 2021, may evolve, it seems likely that mines will experience fewer stoppages as the world recovers from the pandemic, it said.

Even if potential second waves of coronavirus impact producing countries, major companies have introduced protocols and procedures that should reduce the impact of stoppages compared to those seen in the early stages of the pandemic, the report added.

Photograph: Michael Dalder/Reuters