Soaring gold prices spooks demand in India, world’s second-biggest consumer

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Soaring prices of gold amid rising coronavirus cases have spooked buyers and hit demand in India, the world’s second-largest consumer of the yellow metal after China.

Spot gold prices have risen to around $1,770/ounce, an eight-year high, while Indian prices have edged up to a new high of Rs 48,333/10 grams.

Despite a reopening of gold retail outlets from earlier this month after a more than two-month lockdown was eased, few buyers have ventured into these stores.

“There is no demand due to Covid. People are just not venturing out,” said Bachhraj Bamalwa, a prominent Kolkata-based gold merchant.

“There is no festival or weddings on the horizon so people are refraining from buying gold or gold jewellery.”

Gold jewellery shops have opened across the country and are working with about a quarter of their normal staff strength and for limited hours, but there are hardly any walk-in customers.  

In fact, gold prices in India are quoting at a marginal discount of around 150 rupees/10 grams compared to international prices, dealers said. With the Covid-19 pandemic causing acute financial hardship, many small Indian consumers have been turning to selling their accumulated gold, resulting in sales exceeding demand. 

Investment demand still there

However, there is investment demand for gold sold mostly on electronic trading platforms amid expectations that the current global economic uncertainty could drive prices past the all-time high of  $1924/oz reached in September 2011.

“There is a strong possibility of gold prices rising to Rs 58,000-Rs 60,000 per 10 grams by November-December,” said Gnanasekhar Thiagarajan, director at Commtrendz Research, adding that a spike in infection rates and looming US elections could be the trigger.

India imports nearly all of its gold demand and the local price is also dictated by the conversion value of US dollar to the Indian rupee.

Physical demand for gold is expected to pick up only around the festival of lights, Diwali, in November. Expectations of a bumper harvest and a flattened Covid-19 curve by that time could bump up demand for the yellow metal.

Meanwhile, the investment sentiment for gold remains strong, though have waned a bit following a recent rally in stocks, says a wealth manager.

“In the last 3 months, many investors have moved part of their allocations to gold. Certain investors increased their portfolio allocations from 10% to 20% in gold,” said Deepti Suri, an independent wealth manager.

“But now they are moving their money back from gold to equities.”

She said investors are also turning cautious as they are not sure whether the rally in gold would continue at the same pace as in the last one year.

“When something rallies so much then people are skeptical of putting their money in it,” she added.

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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