It’s All Yellow: Even amid a damp sale season, gold’s allure refuses to diminish

According to an October Bloomberg news report, jewellers in India may be staring at their worst sales in 12 years in the key festival quarters. The pandemic and weak economic growth are likely to push sales below last year’s 194 tonnes to the lowest quarterly numbers since 2008, says Chirag Sheth, a consultant at London-based Metals Focus, which provides data to the World Gold Council (WGC). The October Gold Demand Trends report by the WGC also said that global gold demand declined by 19% during the July-September quarter to 892.3 tonnes, the lowest quarterly total since Q3 of 2009 due to coronavirus. The total global demand during July-September 2019 stood at 1,100.2 tonnes, according to the report.

But even though the overall demand declined during the third quarter of the year, there was a significant growth in investment demand, which rose by 21% y-o-y, as per the report. Investors globally bought 222.1t of gold bars and coins, and an additional 272.5t through gold-backed ETFs (exchange traded funds). Year-to-date, gold ETFs have increased their holdings by a record 1,003.3t. “The impact of Covid-19 is still being felt in the gold market across the world. The combination of continued social restrictions in many markets, the economic impact of the lockdown and all-time high gold prices in many currencies proved too much for many jewellery buyers. We believe that this trend will likely continue for the foreseeable future,” says Louise Street, Market Intelligence, World Gold Council, adding, “But looking to the investor landscape, we saw further record inflows into gold-backed ETFs in Q3, taking the global total to a record high. It was equally encouraging to see gold’s role as a safe haven for retail investors shine through this quarter, as people continue to seek stability in volatile markets.”

One thing is clear: the sparkle of gold is not diminishing, as it continues to be a safe investment option, as well as an integral part of celebrations, festivals, marriages and religious functions.

Subdued sales
As per a report by the Gems and Jewellery Export Promotion Council (GJEPC), during April-September 2020, gems and jewellery exports declined by (-)42.97% y-o-y to $8.48 billion as compared to $14.87 billion registered during the same period previous year. During April-September 2020, exports growth of cut and polished diamonds (-36.52%), coloured gemstones (-63.11%), synthetic stones (-45.75%), gold jewellery (-66.43%) and imitation jewellery (-41.98%) witnessed a decline, while exports growth of silver jewellery, polished lab-grown diamonds and platinum jewellery registered a rise.

Gold exports are the highest and the demand is more than supply, says Colin Shah, chairman, GJEPC, and so the council has popularised all metals. However, platinum is mined lesser than gold, so its availability is also less, as most of the exports go to the US and Gulf countries, he says.

Also, with Covid numbers surging sharply in the past few weeks and several European countries announcing fresh lockdown measures, gold prices, which had retreated from over $2,050 an ounce in August to $1,880 an ounce in October, may witness a fresh spike going forward, say experts.

As per PR Somasundaram, managing director for India at the World Gold Council, purchase of gold jewellery, coins and bars halved from a year earlier to about 252 tonnes in the nine months through September. Demand for the full year could fall to a “multi-year low”, he says without providing any estimates. “This year, a good monsoon notwithstanding, the price and Covid’s shadow will affect sentiment, though we can reasonably expect at least a part of the pent-up demand to surface,” he says.

Gold shines bright
With the festive season around the corner, periodic gold investment will continue as part of asset allocation, especially when it comes to jewellery, say experts. “Gold should not be bought for short-term gains and is seen as an investment in India, as it is a culturally integrated metal in the Indian ethos. You will find gods and goddesses adorning the yellow metal. It’s a better investment than any other metal,” says Kolkata-based Suvankar Sen, CEO, Senco Gold and Diamonds, a retailer of gold jewellery. Sen feels every crisis brings an opportunity. “This is true with respect to the behavioural change in young customers that has been brought about by the pandemic. The youth, who earlier did not recognise the value of gold as an important asset class for diversification, are now appreciating the importance it brings to their savings portfolio with gold performing well during crises,” he says.

With the young favouring the most coveted metal, there are a variety of offerings in the market today. For instance, Mia by Tanishq, a fashion jewellery brand by Titan Company, has a trendy collection of wearable jewellery—necklaces, bangles, rings, pendants, earrings and bracelets in 14kt gold that come in contemporary styling in over 1,000 designs, starting at `3,999—making it a preferred choice among youngsters. “Gold is a preferred metal, as it appreciates with time. In India, it’s passed on from generations—from parents to children and grandchildren. With lab-grown stones, precious gems, Swarovski and diamonds in demand, our studded products do well. It also becomes a great gifting item besides other precious material like silver that has its own charm and clientele.

Women experiment with contemporary styling, as they find the 14kt line affordable for self and gifting,” says Shyamala Ramanan, business head, Mia by Tanishq.
Indians’ love for gold, however, is not limited to jewellery, as it has taken the shape of high-yield investment as well. Nearly 29% of retail investors who had never bought gold before now look forward to buying it in the future. Financial technology companies, attractive government schemes and comparatively more product knowledge have made gold the preferred investment option in the country, as per an April report by the World Gold Council. Indians have always been obsessed with gold, as the country ranks among the top three gold consumers in the world. More than half of Indian investors hold some part of gold with them, the WGC report added.

Other metals
Customers are demanding gold mostly for the upcoming wedding season, self-adornment, as well as investment purposes, say experts. Besides gold, platinum is also in demand, but gold reigns supreme. “Platinum is in demand from customers looking for fresh jewellery options and variety, and are keen to try out a rarer metal. But gold jewellery sales are almost 90% and other metals contribute the rest,” says Sen of Senco Gold and Diamonds.

For a brand like Swarovski—a leading crystal jewellery retailer with a 125-year legacy, which has an array of products, from crystal figurines and home decor pieces to Swiss-made watches—jewellery isn’t just an investment, but a means of self-expression. “The gold obsession is for an audience that looks at jewellery as an investment. Our customer segment looks at jewellery as something that facilitates their self-expression. So we are not competing with gold or precious jewellery players, as the target audience is different for us,” says Lars Schmidt, managing director, Swarovski’s consumer goods business for south-east Asia and India. He feels the perception of considering jewellery as an investment is fast changing in India. “If we see the number of precious jewellery brands foraying into modern and everyday jewellery sub-brands or designs, it will also corroborate this belief. The only challenge posed is that this perception will take some more time to change so as to give space to the fashion jewellery landscape in India to really flourish. We want to focus on women who feel the sparkle on an everyday basis without it being their wedding,” Schmidt adds.

Swarovski has been focusing on its Diwali collection since 2018 to create locally relevant campaigns that balance the traditional and the modern. Starting from the products to the look and feel at the store, a 360-degree campaign approach is custom-made for the Indian community. “India and south-east Asia as a region is a spectacular combination of culture, diversity and values. We respect the regional culture and that’s why the brand communication is tailored to fit the culture and people,” says Schmidt, who feels that omnichannel retail is big. “Be it jewellery, fashion apparel or accessories, online purchases have gone through a major upswing, which have mostly arisen from Covid-19, and we anticipate that more customers will be inclined towards buying jewellery online in the future,” he says, adding, “As per McKinsey & Co reports, the share of the online jewellery segment in Asia is set to double from 6% to 12% by 2020. By 2025, 18% of the total sales made will be online, taking the worth to about $79 billion annually. We have strengthened our presence on third-party e-commerce platforms in India with a strong product assortment, which is in line with what is available at stores.”