Consumer demand for gold may remain soft in H2 this year on COVID-19 impact: WGC report

MUMBAI, Jul 14: The consumer demand for gold in the country is expected to remain subdued in the second half of 2020 amid business and income disruptions caused by the COVID-19 pandemic, according to a report.

The report, however, said that financial packages to support the economy and good monsoon may help soften the negative impact of economic blow due to the pandemic.

“In the second half, we expect consumer demand to remain soft due to reduced economic activity, concerns about increasing unemployment and income erosion. However, additional economic packages from the government and a forecasted positive monsoon season could help soften the negative impact of an economic deceleration,” said the World Gold Council (WGC) in the ‘Gold Mid-Year Outlook 2020: Recovery Paths and Impact on Performance’ report.

The Indian economy slowed to an 11-year low of 3.1 per cent in the first quarter of 2020 and in order to stimulate the economy, the Reserve Bank of India (RBI) cut interest rates by a cumulative 115 bps in first half of this year, the report said.

The central government announced an economic package of Rs 21 lakh crore the support the economy.

“While an economic contraction will likely result in lower demand for gold in the form of jewellery, technology or long-term savings, behavioural changes in consumers will be far more impactful than the economic changes,” WGC Managing Director, India, Somasundaram P R told PTI.

“Despite relief measures from the RBI and stimulus from the government, in H2, we expect consumer demand for gold to face headwinds due to disruption-induced factors, real and perceived, on the economic front,” he added.

Prices have risen by over 50 per cent in two years but incomes have not, therefore, the current prices will be a serious “entry barrier”, unless industry breaks this inertia with significant value through various forms of innovation, he noted.

“The situation is constantly changing, but from where we stand at the moment – the demand will recover from the abysmal lows of lockdown. The scale of rebound and time may be sharper and faster for organised chains than unorganised small stores,” Somasundaram said.

Weddings and festive celebrations will most likely be muted as people adhere to the social distancing measures, he added.

This could impact gold jewellery demand, though there is an alternate view that savings in many other spends on weddings will now flow into gold, he opined.

Somasundaram said the impact on the self-employed and unorganised labour segment due to this lockdown may impact gold buying, though digital gold providers could use the opportunity to grow through micro accumulations, offering the safety of allocated gold.

“Recycling and collateralised loans against gold may be expected to grow exponentially in the next few quarters. As fundamental reforms follow easing business sentiment, it is possible that gold becomes a tool for revival of many MSME businesses and household fortunes. Moreover, forecast of normal monsoon and, therefore, a significantly confident agri performance could be a silver lining,” he added.

Meanwhile, in China, the world’s biggest consumer of gold, cautious discretionary consumption may continue which is likely to hinder gold jewellery sales, according to the WGC report.

With the money supply rapidly rising, gold’s role as a hedge against currency depreciation could be more relevant for investors and cautious discretionary consumption may continue to hinder gold jewellery sales, especially if combined with higher prices, the WGC report added. (PTI)


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