India Gold Market Shows Signs of Life as COVID Second Wave Eases

India ranks as the second-largest gold-consuming country in the world, second only behind China, but demand has languished for the last couple of years. The pandemic crushed demand, particularly for gold jewelry, but record-high gold prices in rupee terms and government policy put a drag on the gold market even before COVID-19. There were signs of a turnaround late last year and it continued through the first quarter of 2021. The most recent wave of COVID-19 stalled the gold Indian gold market’s recovery, but it appears to be regaining steam.

Retail gold sales in India rebounded late last month as the COVID-19 surge eased and Indian states began relaxing lockdown measures in mid-June. As a result, retail gold demand improved particularly in the final two weeks of the month.

According to the World Gold Council, reopening unleashed pent-up demand for gold jewelry along with stronger investment demand.

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 solemnized in April and May when stores had been closed.”

The WGC said anecdotal evidence indicates retail gold jewelry sales remained strong into early July, predominantly driven by wedding purchases.

According to the World Gold Council, despite government lockdowns that remained in effect through almost the entire month in important gold-consuming states such as Tamilnadu and Karnataka, one prominent large retailer recorded marginally better demand in June 2021 than in June 2020.

A 4% correction in gold prices also dove gold investment demand, with small denomination gold coins being the preferred retail investment choice. The correction in the domestic gold price also lured local investors into gold ETFs. India-based ETFs increased gold holdings by 1 ton in June and currently hold 34.2 tons of gold, the highest level since September 2013.

Official Indian gold imports came in at 15.8 tons in June. That was a 45% increase year-on-year and a 39% increase month-on-month. Even so, imports remained muted compared to earlier this year. Gold imports boomed in Q1 2021, as India emerged from its first round of coronavirus. India imported 110 tons of gold in April, but import numbers went into freefall in May as the second wave of COVID-19 gripped the nation.

Indians traditionally buy and hold gold. Collectively, Indian households own an estimated 25,000 tons of gold and that number may be higher given the large black market in the country. The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Gold served as a lifeline for Indians pummeled by the economic storm caused by the government response to the coronavirus pandemic.

The Indian government’s response to the first wave of COVID-19 ravaged the economy. As a result, many banks were reluctant to extend credit due to fear of defaults. In this tight lending environment, many Indians used their stashes of gold to secure loans. As Indians battled the second wave of COVID-19, many Indians sold gold outright in order to make ends meet.

Indians understand that gold tends to store value, and that in the end, gold is money. If they have gold, they know they will be able to get the goods and services they need – even in the event of an economic meltdown. And while westerners may not embrace the cultural and religious aspects of the Indian love affair with gold, the economic reasons for their devotion to the yellow metal are every bit as applicable in places like the US.