By K Raveendran
It seems nothing can stand between Indians and their love of gold, not even the Covid pandemic, which has turned life upside down. It is as though they were waiting for the Covid restrictions to ease before hopped back to their favourite gold and jewellery shops.
India’s domestic gold market has moved in tandem with the improvement shown in various sectors of the economy as states began to lift restrictions in the wake of an improvement in the covid situation.
With the daily number of Covid cases falling to less than 1 lakh 30,000 at the end of May from a peak of over 4 lakh in the first week of the month, states started to ease lockdown restrictions from mid-June.
According to World Gold Council, retail demand improved during the month on the back of the re-opening of jewellery stores. Retailers witnessed encouraging recovery trends and increased footfall as consumers made wedding purchases for ceremonies scheduled in July, as well as retrospective purchases for weddings solemnised in April and May when stores had been closed.
Additionally, the 4 percent correction in the gold price in mid-June led not only to the release of pent-up jewellery demand but also to an increase in investment demand, with small denomination coins preferred by retail investors. Despite the lockdown, which had been imposed for almost the entire month in important gold-consuming states such as Tamil Nadu and Karnataka, one prominent large retailer recorded marginally better demand in June 2021 than in June 2020, WGC reported.
For July, anecdotal evidence suggests that gold demand has remained moderately strong in the first half of the month, predominantly for wedding purchases. However, demand is expected to fizzle out from mid-July onwards as there are no further wedding dates in the month and as the onset of Aadi month in Tamil Nadu approaches, WGC noted.
International gold prices fell in June on the back of a more hawkish-than-expected statement by the US Federal Reserve. But with the Indian rupee depreciating by 2.5 percent against the US dollar, the downside to the local gold price was curtailed. As a consequence, the LBMA gold price in dollar and MCX gold spot in the rupee fell by 7.1 per cent and 5.1 per cent respectively during the month.
According to WGC, with most states remaining under lockdown through to the second week of June, the discount in the local market widened further to $9-10/oz. However, as lockdowns eased and activity resumed, by the third week of June the discount had narrowed to $4/oz. The local market flipped back into premium in the first week of July, led by the recovery in retail demand and some restocking from retailers in expectation of a higher international gold price. The local market remained in premium of $1-1.5/oz for the first two weeks of July before the price jump disrupted the recovery in demand and pushed the local market into a discount of US$4-5/oz during the third week of July.
India’s official gold imports totalled 15.8 tonnes in June 2021, which was 45 percent higher year-on-year and 39 percent up month-to-month, but still well below 5-year average June monthly official imports of 41.8 tonnes. During June a total of six banks, nominated agencies and exporters imported 5.9tonnes of bullion and 16 refineries imported an equivalent of 9.9 tonnes of fine gold content. The council feels that with mandatory hallmarking becoming effective from 16 June, the trade is likely to be more focused on reducing its inventory of non-hallmarked jewellery. Considering this, it anticipates that official imports will increase only marginally in July.
The correction in the domestic gold price lured local investors towards gold ETFs with inflows increasing by Rs3.6 billion during June, taking total gold ETF holdings to 34.2 tonnes, which is the highest since September 2013.
According to WGC, after purchasing 0.9 tonnes of gold last month, the RBI bought another 9.4 tonnes in June, increasing its gold reserves fractionally to 705.6 tonnes or 6.5 percent of total reserves. The RBI has stepped up purchases over recent years, adding 29 tonnes to its gold reserves. As per the council’s central bank gold reserves survey 2021, central banks continue to remain positive towards gold, with roughly the same number of central banks expected to buy gold this year as compared to last year. (IPA Service)