Gold & Silver

Golden days ahead for jewellers as India recovers from pandemic

Bloomberg | Updated on October 07, 2021

With daily infection around seven-month lows, and climbing vaccination rates boost the sentiment.

Wedding invites have been sent and the festival season is expected to be lively. That’s good news for India’s gold jewellers, as a reprieve in the pandemic means they can eye a recovery in their most lucrative sales period. In the final quarter, Indians usually boost their purchases of gold ornaments for marriage celebrations. In contrast, sales of coins and bars for investment surge during a series of celebrations that culminate with Diwali, or the Festival of Lights this year is being held in November.

But during the pandemic, they’ve mainly held back their spending on the precious metal as prices surged and restrictions of movement crippled the economy, delayed weddings and muted festivals. Now, daily infection tallies around seven-month lows and climbing vaccination rates boost optimism of a better peak sales season.

Jewellers are further encouraged that sales volumes will rise due to a 17 per cent decline in gold prices in the local markets since their record high last August, as the precious metal’s safe-haven value wanes amid a global economic recovery from the pandemic.

Jewellery - a major consumption

About 60 per cent to 70 per cent of India’s gold consumption is in the form of Jewellery. The World Gold Council data shows that Indians bought 315.9 tonnes of gold-use Jewellery in 2020, almost equal to the combined purchases in the Americas, Europe and the Middle East. China is the biggest buyer at 433.3 tonnes.

According to Ashish Pethe, chairman of the All India Gem and Jewellery Domestic Council, pent-up demand and lower prices could boost last-quarter gold sales as much as 15 per cent higher than in the same period two years ago.

Indians bought 194.3 tonnes of gold in 2019’s October-December festival period and 186.2 tonnes during the same period last year, World Gold Council data shows.

“2020 was an aberration,” Pethe said of last year’s peak sales period. This quarter, gold prices “have mellowed down and are favourable; weddings are also very high in number.”

Last year, bullion surged to a record on massive stimulus measures unleashed by central banks during the pandemic, which sparked a rush of investor money into exchange-traded funds. Investor demand for the precious metal is now waning as the Federal Reserve signals it could start scaling back asset purchases.

“In the absence of strong investor interest, the physical market will set the floor, and recent trade data points to key hubs responding to recent price drops in gold,” said Suki Cooper, an analyst at Standard Chartered Plc. India’s bullion imports have also surged and pent-up demand has been high as the market enters its peak buying period, she said.

It wasn’t just during last year’s festival season that Indian purchases of gold fell. After declining to a more than two decade-low of 446.4 tonnes in 2020, sales could rise by as much as 50 per cent for all of 2021, according to Chirag Sheth, a consultant with Metals Focus Ltd.

While warning that potential safe-haven factors remain that could drive up bullion -- particularly the energy crisis which may lead to high inflation and impact global growth -- Sheth said that “if prices remain where they are in the run up to the festival season, then sales will be good.”

Published on October 07, 2021

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