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Covid situation may dampen gold demand during Diwali season too: World Gold Council



People are getting used to Rs 50,000 plus range for gold. It would not take long before people just come out to buy as fears of Covid recede and priorities in life change, we will see a spike in demand, says Somasundaram PR, MD India.

There has been a 74% drop in demand for gold jewellery in Q2 and 56% drop in investments in gold. I guess it is the combination of lockdown and the high gold prices that are working against demand. Even in July we have seen gold prices skyrocket to beyond Rs 50,000-53,000. Is the demand going to stay weak?

In the second quarter (April to June), we missed the Akshaya Tritiya celebrations as it was subsumed by the lockdown and so obviously the figures do not surprise us. We cannot draw a trend based on the second quarter, but clearly the third quarter with the easing of lockdown did see the prices acting as headwinds. The prices have since sharply gone up. Together with GST, now it will cost Rs 55,000 per 10 grams. We believe it will be some time before consumers get used to this price band.

Akshaya Tritiya is gone and the wedding season is almost nonexistent because of social distancing measures. That means the next big thing to watch out for is perhaps the Dhanteras and the Diwali festive season. Could high prices play a dampener there as well?

Two things are important as far as Diwali is concerned; first, what is going to happen to Covid? While, of course, there has been an easing of the lockdown, are people really in a mood to go out and shop?. If you have a wedding in the family, you will perhaps do that but even there, social distancing has taken away the joy of shopping for gold. So how much of this is going to remain during Diwali is a very important question. Post Diwali, in the fourth quarter  there is a wedding season which happens to be the best gold buying season for India every year. The Covid journey is going to determine all of this and no one knows whether things will be normal by Diwali, will there be a medical solution? So we do not know if the consumer sentiment will be back.

From the second quarter, I may draw a very small insight that it was a complete lockdown other than for a few centres. We saw 44 tons of gold being purchased despite the price going up. If that is any indication, there is a latent demand and people will come back to buy and we will see a spike.

How do you expect things to normalise? Do you expect online orders to increase?

Certainly, online digital experiences and digital engagement is going to stay with us. Whatever people have experimented with during this lockdown, some of it will stay and it will be a very good change.

But is it in the immediate run going to make up for the way we were buying gold in the past? There are nearly 12 million weddings. Now how many of them are going to take place is also a very important determinant of gold demand. If they all get pushed to quarter one post the availability of vaccines etc, there may be some purchases, but it will mostly get pushed to the first quarter. In India, in the past, there have been quarters where demand has been as high as 320 tons. Now that all depends on a few factors coming together.

Our view is there is definitely a latent demand, yes price is a headwind now but people have now got used to this Rs 50,000 range. So, it would not take long before people just come out to buy. As fears of Covid recede and priorities in life change, we will see a spike in demand.

We had spoken to Titan after the Q4 results. They categorically said that online experience of jewellery may be completely different from how you are taking it in the store. Do you expect once things are back to normal, customers will return to stores quite easily?

Absolutely and this is what I will say. Every jeweller is testing various things and people like Titan are absolutely very high up on the curve. Some of these things are going to stick. They are not going to change the behaviour, but it will take a little time. The middle class and others do not immediately adapt to buying gold digitally. But if you look back two years from now, you would see that digital has taken a very fair share of the customer engagement as well as demand.


Courtesy: Economic Times

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