Demand for gold likely to be buoyant this year too

The buoyancy in gold jewellery demand is expected to continue through this year even as prices are expected to scale back close to previous highs with concern on inflation ruling the roost.

Though, fundamentally, the expected increase in the US Fed interest rates and rollback of the stimulus will strengthen dollar and pull down gold prices, analysts believe that the too many uncertainties posed by new variants of Covid and geo-political developments could support prices.

Investors and analysts believe that since rising interest rates make bonds and other fixed-income investments more attractive, money will flow into higher-yielding investments from gold.

Though the Covid induced restrictions have marred jewellery demand in the first half of 2021, it recovered from September quarter due to pent-up demand and wedding season sale. Stable gold prices aided gold jewellery purchases during the festivals in the December quarter.

A host of marriages that were postponed due to Covid restrictions are slated to happen through 2022. This will further drive up wedding jewellery sales. After muted demand in the last two years, the jewellers are expecting a bumper sales in the December quarter and expect it to continue if there are no harsh restrictions on retail outlets.

Internationally, gold prices have fallen by about 5 per cent while in India, MCX Gold dipped over 6 per cent as rupee depreciated against dollar in 2021.

Ramesh Kalyanaraman, Executive Director, Kalyan Jewellers, said with continued easing of Covid-related restrictions and return of buoyancy in consumer sentiments across the markets, festival sales was very positive and dawn of new normal.

The December quarter was one of the most important period for the jewellery industry and the market response was encouraging with gold prices dipping, he said.

Kalyan Jewellers expanded its showroom network to 150 and announced mega festival discounts on diamond, precious stone and uncut jewellery purchases. With focus on enhancing customer experience, it has reinstituted Gold Protection Plan that allows customers to book their jewellery purchases in advance, he said.

Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions, said the fiscal advancement and the effect of pent-up gold demand are expected to herald a period of robust demand this year.

Looking ahead, if the industry considers taking appropriate steps to become more transparent, standardised and in line with international peers, India’s gold market would most likely profit from positive demographics and socio economic transformations.

US interest rates

The growth in Indian gold market is dependent on US interest rates that are predicted to surge in the first quarter of the year.

The development also depends on the anxiety of inflation being under control or being on the higher side, he said.

Gold prices will be driven by expected tapering of $20-30 billion fiscal stimulus every month by the US Fed. If interest rates increase and tapering continues, gold prices would move down to about $600-700 an ounce.

If the inflation fear is higher owing to a global rise in cases due to third wave, then the gold prices will inch to $1600-$1700. Gold prices will increase to $2,000 an ounce in the unlikely event of the US ignores inflation fear and postpones tapering, said Kothari.

Kaushik Das, Vice-President, ICRA, said the industry is expected to record a strong growth of about 35 per cent last year, albeit on a smaller base, with the demand for jewellery exceeding pre-pandemic levels in the recent months.

The consumption has been driven by robust wedding-related purchases and improving consumer sentiments with rising vaccination coverage during the second half of the year, he said.

The sales momentum is expected to continue with a 15 per cent in 2022, on the back of strong cultural affinity for gold with continued healthy demand for bridal wear, he added.

Organised players are expected to witness a higher-than-industry growth of over 20 per cent, fuelled by renewed store expansion undertaken across markets coupled with an increasing shift towards hallmarked products.

Price outlook

Nish Bhatt, CEO, Millwood Kane International, said after two stellar years of returns, gold prices underperformed most asset classes in 2021. Gold rose to all-time high levels in 2020 due to the uncertainties posed by the pandemic.

It attracted investment in a low-interest rate regime, the current rising interest rate scenario will continue to put pressure on the yellow metal. Interest rates, inflation, and the manner in which countries control the new variant will guide gold prices for a good part of this year, he said.

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