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As Gold ETFs witness outflows, consumer demand for jewellery picks up


Net bullion imports, which constitute 85-90 percent of India’s gold supplies, saw a sharp surge of 262 percent in the first quarter of 2021 (Q1CY21).

As Gold ETFs witness outflows, consumer demand for jewellery picks up
Global gold demand declined in the first quarter of 2021 even as consumer demand for the yellow metal witnessed a sharp jump. In a recent report by Motilal Oswal (MOSL), net bullion imports -- that constitute 85-90 percent of India's gold supplies -- saw a sharp surge of 262 percent in the first quarter of 2021 (Q1CY21).
The report added that although growth is on a soft base of Q1CY20, it is at the highest level in 8 years, that is since Q2CY13, which indicates the extent of pent-up demand.
While the decline in global gold in the first quarter was mainly due to outflows from gold Exchange Traded Funds (ETFs), total consumer demand including jewellery, bars and coins witnessed an uptrend.
As per MOSL, there was a major drop in demand for gold as an investment, especially via ETFs, as a fall in gold prices and higher interest rates led to investors switching to other asset classes,
However, consumer demand rose on the back of stocking up ahead of upcoming festivals (including Akshaya Tritiya in May 2021), noted the brokerage.
"The continued downward momentum in gold prices is one of the key factors behind higher jewelry demand and lower investment demand. Since the softening of gold prices since the third quarter of CY20, the momentum seems to have now taken a turn as gold prices have risen during April 2021 after bottoming out in March 2020 quarter," it added.
As per MOSL, the jewelry demand saw a tremendous surge due to an improving economic scenario, fall in gold prices, and festivities. The global jewelry demand was up 52.4 percent YoY to 477.4t in 1QCY21, led by India and China. These two countries together constitute 55-60 percent of global demand, the brokerage report stated.
"Demand for jewelry remained robust in India, with volumes up 38.3 percent YoY to 102.5t in 1QCY21. Demand was boosted by: a) easing of lockdown restrictions, b) lower gold prices, magnified by lowering of customs duty, and c) wedding demand," MOSL observed.
Meanwhile, the global demand for bars and coins also saw a significant jump on a YoY basis. With the bottoming out of gold prices, consumers advanced purchases in the form of gold bars and coins. Demand for bars and coins rose 33.8 percent YoY to 37.5t in 1QCY21, added MOSL.
Going ahead, the prospects for India in the second quarter of 2021 are less certain as state governments are imposing regional lockdowns to cope with the aggressive second COVID wave, stated MOSL. Nevertheless, it added that jewelry players are better equipped in CY21 to deal with disruptions caused by the lockdowns, with omnichannel strategies and higher usage of technology, which may offset the impact to some extent. Once the lockdown ends, there is likely to be a sharp jump in demand as seen earlier, especially given the low gold prices and pent-up wedding demand.

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