As demand shrinks, gold import likely to fall to 17-year low

Those interested in investing in gold have shifted to instruments, such as sovereign gold bonds and gold ETFs. Many others are, in fact, selling gold or using it as collateral to generate short-term liquidity.

Gold import in the calendar year 2020 (CY20) is expected to fall 50 per cent to nearly a 17-year low because of lacklustre demand since the Covid-19 outbreak in March and record-high prices.

Experts estimate only 350 tonne of gold import this year, matching the 2003 figure.

The pandemic and lockdown have severely affected the jewellery industry and changed demand equations -- those interested in investing in gold have shifted to instruments, such as sovereign gold bonds and gold ETFs.

Many others are, in fact, selling gold or using it as collateral to generate short-term liquidity.

Despite demand destruction, the yellow metal is the best-performing asset in CY20, thus far.

In CY19, according to the World Gold Council data, India had imported 647 tonne of gold. In the March quarter of CY20, the import was 78.4 tonne; in the June quarter, it was merely 11 tonne.

The import scene in July, too, is not encouraging and demand is expected to fall to a third this year.

As far as the gold import bill is concerned, in the first half of CY20, it came down to $5.86 billion -- a level not seen since 2005.

In the first half of 2005, the import was worth $7.7 billion.

Chirag Sheth, principal consultant, India and South Asia, Metal Focus, said: “Indian gold demand is likely to drop significantly in 2020 because of the impact of Covid-19 on the economy.

"We believe discretionary spending of high-value items, such as jewellery, is likely to be curtailed significantly.”

In the current scenario, jewellers are adopting different strategies to meet the challenges. Dipu Mehta, managing director, Orra, said: “The way we function as retailers has drastically changed.

"The biggest challenge is to manage the dynamism and quick response to opening and shutting of stores depending on the terms of Covid-19 containment.

"The second biggest challenge is to keep customers engaged when they are unsure of stepping out of their houses for shopping.”

Paper gold is already witnessing an increased market share since the imposition of the lockdown.

Sovereign gold bonds, equivalent of 10.8 tonne of the yellow metal, have been issued since the beginning of April.

These bonds don’t require equivalent stock of physical gold, and hence that much demand of physical gold is lost. Gold ETFs, equivalent of 4-5 tonne of physical gold, has been bought since April 1.

ETFs require storing of physical gold.

Photograph: Reuters