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A Snapshot of the Indian Gold Market Amid Covid-19

By Prithviraj Kothari, National President, India Bullion and Jewellers Association
Published on March 20, 2020

At the start of the year, I expected 2020 to be a very good year for gold, as developments in global economy were not very encouraging. In the past six months we have seen low real interest rates in the United States, Europe and Japan, lower economic growth projections, Brexit, the US-China trade war, and more. Covid-19 has brought everything to a standstill. Covid-19 has hit 115+ countries and everyday the number of casualties are on the rise. As a result of the outbreak, equities, crude oil and currency markets have collapsed. Gold was the only asset class that held firm at the beginning. At the same time, portfolio managers, institutional investors increased the weightage of gold in their portfolios. The increase in SPDR ETF holdings in recent times is a case in point.

However, gold too suffered when there was a huge margin call on other asset classes. In my opinion, the correction in gold prices could the pull market down to US$1,500–1,520 levels. I expect gold to stabilise around these levels and then move up gradually. The broad structure of gold market is positive. We could see gold prices touching US$1,800/oz. in London over the next 12 months purely on the back of increased investment demand for gold in an uncertain global economic environment.

In India, we see important changes. When gold prices touched 38,000 rupees ($729) per 10 grams for the first time last year, demand collapsed and scrap flow into the market increased. As a result, the official market traded at a $75 discount. Today, prices are much higher but discounts are minimal. People have started accepting the new range of prices. Physical demand for gold may fall slightly, but jewellery demand should continue to hover around 550 tonnes.

The rupee has slid to around 74 to the US dollar. However, lower crude oil prices could save the day for the currency. Gold prices in the Indian market could move gradually to 47,000 rupees per 10 grams. As seen in the past, people do not buy when the market is falling. Thus, the current demand is lower. Once the price stabilises, then buying should resume in the market. Given that the marriage season is approaching, a correction in prices will be good for jewellery demand.

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