India’s Gold Demand Down by 35% in 2020

Mumbai: India’s gold demand for 2020 hit levels last seen in 1995 due to a devastating combination of Covid-related lockdowns and all-time high prices.

The country’s gold demand last year was 446.4 tonnes compared to 690.4 tonnes in 2019, a year-on-year decline of 35%, the World Gold Council’s (WGC’s) latest Gold Demand Trends report states.

Somasundaram PR, Managing Director of the WGC (India), said, “India’s gold demand dropped by over a third in 2020 … on the back of Covid-induced lockdowns and lifetime high prices. However, the drop was significantly lower when viewed in value terms, 14% lower than 2019 as prices were up 34% hovering around Rs.50,000/10grams for most of the past year.”

Total gold jewellery demand in India for 2020 was down by 42% at 315.9 tonnes as compared to 544.6 tonnes in 2019; and total investment demand for 2020 was down by 11% at 130.4 tonnes in comparison to 145.8 tonnes in 2019 mainly due to pandemic-related restrictions.

Somasundaram added, “However, in Q4 2020, the festive period and the ensuing wedding season revived hopes and drew in jewellery demand worth 137.3 tonnes—the strongest quarter in the year. Investment demand also showed significant resilience, growing 8% to 48.9 tonnes. Predictably, as lockdown eased and normalisation efforts were phased in, imports in Q4 rose 19% year-on-year, pointing to the positive impact of pent-up demand. This can be expected to continue into 2021 as further normalcy returns and steady course of reforms strengthen the industry.

He noted, “With the implementation of mandatory hallmarking in June 2021, establishment of the international bullion exchange in GIFT city and Retail Code of conduct under the aegis of the industry steering committee, industry growth will be qualitatively superior underpinned by global ambitions and strong awareness of trust and transparency. From the consumers’ perspective, there is acceptance of the current high price level as the new normal. In addition, current high stock indices and low interest rates will add significant weightage to gold amidst inevitable return of celebrations and festivities.

“We could see a strong spurt in gold demand for the next few years, a repeat of what happened after a sharp drop in 2009. In such a scenario, the current high tax on gold increases the lure of smuggling. In fact, regarding expectations from the upcoming Union Budget, our longstanding demand is that the gold import duty must be cut, particularly since the situation in 2020 will enable the grey market to only grow stronger as people have lost livelihoods; and the 16.2% arbitrage is very attractive to someone who has lost a job and therefore may look to tacitly enter the grey market.”

Total gold recycled in India in 2020 was 95.5 tonnes, down 20% as compared to 119.5 tonnes in 2019.

Somasundaram informed, “I foresee an increase in gold recycling in 2021 as small businesses will turn to selling gold to revive their fortunes. The government should treat gold as an asset class and give a capital gains tax exemption with a limited window period, as people will turn to gold to restore their livelihoods.”

“2021 will likely set a trend of long term growth in Indian gold demand and the benefits of such growth can be explicitly captured if coordinated policy measures are sustained, making gold a mainstream asset class,” he concluded.