India’s gold demand fell sharply in the March quarter following higher prices and fewer auspicious days for buying gold. The fall in demand was because of lower demand for jewellery. Total demand in the first quarter of 2022 was down by 18 per cent to 135.5 tonnes. However, jewellery demand was down 26 per cent to 94.2 tonnes, on a year-on-year (YoY) basis.
The trend was contrary to global demand for gold, which went up by 34 per cent YoY to 1,234 tonnes, the highest since Q42018. Global demand was led by an increase in investment demand, which went up in the quarter by 203 per cent YoY to 550.7 tonnes. In India, investment demand was up only marginally by 3 tonnes or around 5 per cent YoY as Indians prefer to sell old gold, both jewellery as well as coins, when prices are high rather than buying gold.
Domestic gold prices surged to almost Rs 55,000 per 10 gram in March, after hovering around Rs 49,000 in early January 2022.
As a result, the supply of scrap on net basis (after considering exchange of old gold for new jewellery) was 27.8 tonnes, up 88 per cent YoY in the March 2022 quarter, which is highest after September quarter of 2020.
The report on gold demand trend Q12022 released today by the World Gold Council (WGC) said, “Global jewellery consumption lost momentum in Q1: demand was down 7 per cent year-on-year at 474 tonnes. The drop was largely due to softer demand in China and India.”
The Ukraine invasion and surging inflation were key factors driving both, gold price and demand. Gold ETFs or exchange traded funds, however, had their strongest quarterly inflows since Q3'2020, fuelled by safe-haven demand. Their holdings jumped by 269 tonnes, more than reversing the 174 tonnes annual net outflow seen in 2021.
Investment in gold bars and coins was 282 tonnes in Q12022, down 20 per cent YoY. Renewed lockdowns in China and historically high local prices in Turkey were key contributors.
Outlook for India demand
According to the WGC report, “Demand in the second (April-June) quarter will receive support from festival purchases (Akshaya Tritiya – a key gold-buying festival – on 3rd May and wedding season buying. Underlying consumer sentiment is improving, which should also prove supportive. “However, demand could face headwinds should there be further increases – or heightened volatility – in the gold price, while broad-based inflation may also curb demand by squeezing disposable incomes.”
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