Demand for gold jewellery expected to rebound in H2

Demand for gold jewellery from retail consumers is expected to grow in the second half of the fiscal after a sharp fall of 64 per cent in the first half.

The gradual opening of stores post lockdowns was supported by a steady increase in footfall although much lower than last year, said an ICRA survey. Factors like rising preference for gold as an asset class, favourable rural output amid good monsoons, expectations of a further rise in prices are likely to support demand in the next few months.

The industry grappled with a decade-low level of demand last fiscal, battled multiple headwinds like weakened consumer sentiments amidst a sharp rise in gold prices, subdued rural output and fall in consumer surplus.

K Srikumar, Vice-President, ICRA, said demand for gold jewellery fell 18 per cent last fiscal following a muted one per cent growth in FY19.

The March quarter gold jewellery demand was down 41 per cent primarily due to the lockdown in the critical last two weeks.

The country-wide shutdown of retail stores in the first few months of the current fiscal also affected demand.

Supply chain disruption and restrictions over movement of non-essential goods in April and May resulted in jewellery demand falling 74 per cent in June quarter. Akshaya Tritiya-linked sales were lost and the 16 per cent increase in gold prices dented consumer sentiments.

Over the last 18 months, gold prices have sharply risen, breaching the $2,000 an ounce peak, achieved in August before falling below $1,900 an ounce in recent weeks.

Gold demand and prices generally rise in uncertain times, as the yellow metal is one of the best hedges during such times. Current events like slowing economy in key regions, escalating US-China geo-political tensions, higher stocking of gold by major central banks and Covid pandemic related uncertainties have pushed up prices, which rose by over 40 per cent since January.