Physical gold demand falls 36% as prices soar, but that might not stop rates from inching higher

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Updated: Jul 28, 2020 5:39 PM

Physical gold demand fell 36% in the April-June quarter with losses across major sectors as the price of the yellow metal scaled to new all-time highs.

now you can invest in gold for one rupees know answers of your questions related to digital goldWhile key regions saw a slump in demand in the wake of the coronavirus pandemic, among segments, jewellery fabrication volumes have taken the worst hit.

Physical gold demand fell 36% in the April-June quarter with losses across major sectors as the price of the yellow metal scaled to new all-time highs. Demand slipped to 677 tonnes to levels last seen in the first quarter of calendar year 2009, data sourced by Refinitiv showed. Gold prices have continued to inch higher amidst the pandemic as investors rushed towards gold, which is considered a safe instrument to invest in during uncertain times. Gold prices on Tuesday hit a fresh high of Rs 52,435 per 10 gram, following global markets where it touched the lifetime high of $1981.10 per ounce.

While key regions saw a slump in demand in the wake of the coronavirus pandemic, among segments, jewellery fabrication volumes have taken the worst hit. 55% of the total physical demand of gold is fuelled from the Jewellery fabrication segment. Likewise, demand for gold used in industrial applications recorded a year-on-year decline of 16%, with losses across all the major segments. “Official sector purchases dropped by 42% to an estimated 122 tonnes in the April to June period, largely caused by an absence of purchases by Russia and China,” Refinitiv said. Retail investment in gold also took a fall as demand slipped 2% from the previous year. 

Demand for physical gold bars was down in Asia but was offset by higher demand from Europe and to a lesser extent North America. Globally physical gold bar demand slipped less than 1%. “Gold bar demand in Asia slumped by 58% year-on-year, led by a sharp fall in India as a result of record high gold prices and a national lockdown. Demand in China dropped by 2% year-on-year, hit by the economic slowdown and high gold prices,” Refinitiv said. Coin demand, which is the sum of official coin fabrication and medals & imitation coins, slipped by 5% during the quarter. Demand slipping in India was the main catalyst here as India accounts for the bulk of gold demand from this sector.

Even production was down during the quarter as operations took a hit amidst the coronavirus pandemic. Refinitiv highlighted that most impacted regions include Latin America and Africa, which after strict lockdowns were placed on a non-essential activity, including mining in most cases. South Africa, Indonesia, Peru and Argentina suffered heavy losses. Since 2013, demand for gold bar, coin and jewelry has been the second highest from India, behind China in the first spot, according to UBS.

After reaching a new high, gold prices are in no mood to slow down and the lack of physical demand will not affect rates of the precious metal. With the greenback continuing to lose value and uncertainty rising with renewed tensions between the United States and China, the precious metal could trade higher this fiscal. “Widespread uncertainty about the economic impact of accelerating Covid-19 cases and unprecedented stimulus packages by the major central banks is leading to an unabated run in prices,” Sugandha Sachdeva, VP-Metals, Energy & Currency Research, Religare Broking told Financial Express Online. “Though short term aberrations are quite likely, providing for buying opportunities-but overall gold is likely to retain a positive outlook and looks poised to test levels of around Rs 55,000 per 10gms from a medium term perspective,” she added.

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