Gold losing its shine for India amid deepening Covid-19 crisis

Spiraling coronavirus cases may cripple demand for gold and jewelry in India, one of the leading global markets for the precious metal, the World Gold Council (WGC) said.

India saw increased purchases of gold in the first three months of the year, with its official imports hitting a decade high of 164 tons in March. It was driven by robust consumer demand, including pent-up demand from weddings postponed from 2020, as well as stock building among the trade ahead of key festivals such as Akshaya Tritiya in May.

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However, the new wave of coronavirus infections is now threatening to affect the recovery of the Indian economy and demand for gold, which may falter in the second quarter. At least 300,000 new Covid-19 cases have been registered every day over the past week, forcing the authorities to impose new restrictions. On Friday alone, the country saw over 400,000 infections, setting yet another daily record. 

“As new lockdowns are imposed in various areas of the nation in response to rising COVID-19 cases, consumer confidence has dipped,” the WGC said in its latest report published on Thursday. It added that the wedding demand may be down in the April-June period, but the drop may be partly offset by digital and retail strategies formed in the past year and attempts by the central government to avoid a full national lockdown.

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However, consumer sentiment could be affected until large-scale vaccination is achieved, according to the managing director of the WGC’s Indian operations, Somasundaram PR. “People had just started spending and now that’s all stopped. People are more aware that it is spreading fast and that they need to be careful, so that will affect all the festivities,” he said, as cited by Bloomberg.

The coronavirus crisis pushed bullion prices to historic highs last year amid uncertainty in the global stock markets. As markets rebounded, gold started to lose luster for investors, with demand falling 23% during the first quarter compared to a year ago. Gold-backed exchange-traded funds (ETFs) saw strong outflows as higher interest rates and a downward price trend weighed on investor sentiment, according to the WGC, but the decline was mitigated by strengthening demand from the world’s biggest consumers, such as China and India.

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