India Gold Demand to Fall by Half in FY21

SEATTLE (Scrap Monster): The latest report published by UBS Securities India foresees 50% dip in gold demand for jewellery and retail investment in India in fiscal year 2021. The worst ever recession in the country this year will cut the fiscal gold demand to around 350-400 tonnes. This is upon comparison with the average demand of approximately 700 tonnes over the past few years.

According to the report, a rebound is expected in FY22, as disruptions due to pandemic ease out. However, the demand is unlikely to return to pre-Covid-19 levels any time soon. The physical demand for gold in the country is likely to remain subdued, mainly due to persisting economic uncertainties and constantly elevated gold prices.

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The dip in domestic gold demand will lead to significant reduction in imports of gold. As 80% of the country’s gold demand is met through imports, the decline in imports will result in surplus current account balance for the first time in almost 15 years.  The net gold imports are likely to drop to $9 million in FY21, as compared to $16 billion in FY20.

The UBS report cites shift in investor preferences to other financial products including mutual funds during recent times. Gold is unlikely to become the preferred investment product as long as its prices continue to remain high.