Gold consumption in India, the world’s second-biggest buyer, is expected to rebound in 2021 after plunging to the lowest in more than two decades, according to the World Gold Council (WGC).
Demand is expected to jump closer to the 690 tonnes bought in 2019 as the country’s economy shows signs of recovery, P.R. Somasundaram, managing director at the council for India, said in an interview. Goldsmiths had one of the worst years in 2020, when demand slumped by more than a third to 446.4 tonnes, the lowest since 1994, as coronavirus-related lockdowns, curbs on movements, record high prices and lower incomes slashed spending on jewellery, WGC data showed.
“The price now is more acceptable and the 50,000 rupees level ($686 per 10 grams) has become the new normal,” Somasundaram said. “Also, going by what has happened in 2020, people will want to celebrate every little thing in 2021,” and that would benefit gold as weddings that were deferred take place this year, he said.
At the same time, interest rates are low and the stock market has run up too fast, so people will want to allocate more in gold to hedge their investment portfolio, he said.
“We could see a strong spurt in gold demand for the next few years, a repeat of what happened after a sharp drop in 2009,” he said. “In such a scenario, the current high tax on gold increases the lure of smuggling, so a duty cut to reasonable levels is absolutely necessary, along with tax concessions for recycling gold, innovations and digital interventions.”
Even the global gold demand is set to recover this year, after slumping to the lowest in more than a decade in 2020, according to WGC.
With bullion prices climbing to an all-time high and pandemic lockdowns stifling consumption, demand for gold jewellery fell to the lowest on record last year, the WGC said in a report. That decline was led by the key Indian and Chinese markets, which experienced historically weak sales.
Now China’s economic recovery is supporting a rebound in demand, said Louise Street, the WGC’s senior markets analyst.
