India, China drive Q1 global gold demand for jewellery

Subramani Ra Mancombu Chennai | Updated on April 29, 2021

Higher ETF outflows drag down overall offtake of yellow metal by 23 per cent

India and China drove gold jewellery demand 52 per higher during the first quarter this year compared with the same period a year ago, but it was still lower than the average first quarter demand during 2015-2019, according to the World Gold Council (WGC).

In its Gold Demand Trends 2021 report, the WGC said that jewellery offtake totalled 477.4 tonnes compared with 248.25 tonnes a year ago.

The WGC said overall first quarter demand for gold, excluding over-the-counter, was 23 per cent lower than the first quarter last year at 815.7 tonnes.

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Though gold prices were 13 per cent higher year-on-year, they were still 4 per cent lower compared with the last quarter of 2020. On Thursday, gold was quoted at $1,781.45 an ounce.

Gold prices had run to a record $,2,020 in August last year before easing off to current levels. The yellow metal prices are over 6 per cent lower since the beginning of this year, though they have gained 5.56 per cent in the past month.

“The opportunity to buy at lower prices, relative to the highs seen last year, boosted consumer demand, particularly as many markets continued to emerge from lockdown and economic recovery lifted sentiment.” the WGC said.

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Feature of jewellery demand

A feature of the jewellery demand was that the value spent on buying gold for jewellery in the first quarter was $27.5 billion (₹2.03 lakh crore), the highest since 2013 first quarter.

The quarter also saw bar and coin investment rising 36 per cent year-on-year to 339.5 tonnes on bargain-hunting and concerns over rising inflation.

The consumer demand growth was, however, offset by high outflows in gold-backed exchange traded funds (ETFs). During the first quarter, holdings in ETFs dropped 177.9 tonnes due to the downtrend in the yellow metal affecting investor sentiment.

Gold demand fell to a 25-year low of 446 tonnes in 2020

Indian demand tops 100 t

Demand for gold jewellery in India increased 39 per cent to 102.5 tonnes in the first quarter compared with the same period a year ago but it was still short of 125.4 tonnes witnessed in the 2019 first quarter.

In turn, the value of jewellery demand increased 58 per cent during the period to ₹43,100 crore. The demand also saw the premium on gold in the domestic market rising by $7 (₹525) per ounce in early March, the WGC said.

A cut in import duty on gold helped increase the offtake. Though gold prices were 14 per cent higher at ₹47,131 per 10 gm in the first quarter compared with the same period a year ago, they were still 6 per cent lower quarter-on-quarter.

Prices were also 16 per cent lower than the record price of ₹56,000 for 10 gm witnessed in August last year. On Thursday, 22-carat jewellery gold was quoted at ₹45,430 per 10 gm in Mumbai.

“The move below the key psychological level of ₹50,000 per 10 gm was instrumental in spurring bargain buying and releasing pent-up demand,” the Gold Council said in its report.

Purchases for weddings also supported jewellery offtake in India during the first quarter, particularly since there was pent-up demand as some marriages had been put off due to Covid last year.

Offers and discounts from organised retailers also helped, the Council said and pointed to leading jewellery maker Titan reporting wedding jewellery being a strong driver of growth.

Q2 outlook

The WGC was, however, cautious in its outlook for the current quarter in view of the new lockdowns being imposed in various areas across the country. It has also resulted in a consumer confidence dip and could result in impacting wedding demand.

Globally, too, the second quarter demand could be slack since it is a traditionally low season for Chinese jewellery offtake. In China, consumer preference partly veers towards lighter gold jewellery during summer generally and the trend could repeat this year too, the WGC said.

China’s 212% demand growth

China’s jewellery demand increased to 191.1 tonnes, the highest quarterly growth since 2015. Demand increased 212 per cent year-on-year as the first quarter last year was “extremely weak”, but compared with the 2019 first quarter it was 4 per cent higher.

Improving economy, lower gold prices and sparkling sales on account of Chinese New Year contributed to the demand growth. Chinese GDP grew 18.3 per cent in the first quarter, while disposable income in the Communist country increased 13.7 per cent.

A 8.5 per cent drop in gold price in the first quarter compared with last year’s fourth quarter also buoyed demand. As China encouraged its citizens to stay put at home in view of Covid, the budgeted travel money was used for buying gold.

“And anecdotal reports suggest sales were further boosted by the confluence of the Chinese New Year holiday and Valentine’s day, as well as by purchasing to celebrate International Women’s Day (March 8),” the WGC said.

Also, heritage gold jewellery products continued to dominate the market in the first quarter of 2021 in China, where such products continued to gain market share and featured more heavily in retailer inventories. These attracted high-end consumers, the Council said.

Other factors

Jewellery demand in the US also increased 6 per cent to 24.3 tonnes as the consumer sentiment was boosted by the vaccine rollout programme and Federal income support measures.

Central banks buying of the yellow metals was healthy during the first quarter with global official gold reserves growing by 95.5 tonnes. Though it was 23 per cent low year-or-year, it was still 20 per cent more than the fourth quarter last year.

Use of gold in technology increased 11 per cent during the review period in view of a rise in consumer confidence with demand recorded at 81.2 tonnes (80.2 tonnes).

The growth came amidst a 4 per cent drop in supply at 1,096 tonnes (1,146.5 tonnes). This was mainly in view of gold recycling dropping 8 per cent to 270.2 tonnes (295 tonnes). Gold mine production, however, increased 4 per cent to 851 tonnes (816.5 tonnes).

Published on April 29, 2021

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