Gold in the time of pandemic slide 1

So, the pandemic took place when India

was speeding towards the economic
boom and Indians were pinning their
hopes for a better future, Covid-19
penetrated turned everything upside
down in a moment. The effective
economic policies fell flat due to this
unexpected phenomenon. While stocks
baffled the Indian investors, it was gold
that regained their trust.

This was not the first time that India,

which is the second-largest consumer of
gold in the world, had witnessed the
demand for gold reviving sharply during a
crisis. Infact, the World Gold Council
(WGC) stated that India saw a demand for
gold rising 19% year-on-year to 76.1
tonnes in the June quarter in 2021.
The rise in gold value was a result of the
financial lockdown imposed on the Indian
economy. Job losses, salary cuts and
medical expenses resulted in a decrease in
individual loans and loans being taken by
MSMEs (micro, small and medium
enterprises). This financial uncertainty
turned many to invest in gold which is
considered a safe haven. Also, Central
banks too decreased their forex reserve
holdings to substitute them with gold. As
per the International Monetary Fund
(IMF), in Q3 2021, India’s forex reserve
was USD 637.5 billion. These were some
of the factors which raised the demand
for a safe investment option.

The World Gold Council stated that

demand for jewellery in India during 2021
was up by 93% at 610.9 tonnes, compared
to 315.9 tonnes in 2020. Also, at the
world level, this demand increased by
52%. This rise in demand in India was due
to the wedding and festival season as
lockdown restrictions in the second half
were eased and a successful vaccination
programme along with some economic
growth changed consumer sentiments and
induced them to spend and invest during
festivals like Dussehra and Dhanteras.

Gold is an effective hedge against inflation

and is more liquid in comparison with real
estate or other debt instruments which
come with a lock-in period. As gold suited
heightened economic policy uncertainty,
it performed well during the pandemic.

Slide 2
Akshaya Tritiya gold sales surpassed the
pre-Covid-19 level by 25-30% to 27.5-28
tonnes this year, according to industry
executives, as shops were open for the
first time on this occasion after two
years.

In the pre-Covid 2019, total gold sales of

22 tonnes were recorded on Akshaya
Tritiya, a day in the Hindu calendar when
it is considered auspicious to buy gold and
gold jewellery.

The fall in prices to ₹51,340 per 10 grams

from last week's high of ₹54,000 per 10
gm added to the footfall, as did Tuesday
being a public holiday on account of Eid
and a number of weddings lined up till
July.
Diamond sales also saw an increase,
although prices of polished diamonds
have appreciated 7-8% due to supply
shortage.

2nd event

Jewellers were happy on the auspicious

day of Akshaya Tritiya to witness a
footfall jump of 30-40 per cent compared
to normal days but apart from religious
sentiments another event that
contributed to this was, the Ukraine
crisis, it, influenced people to purchase
gold and bullion as assets.

President of India Bullion and Jewellers

Association West Bengal, Ashok Begani
said that they witnessed tremendous
response for gold jewellery as well as
bullion because people are cautious in
spending on discretionary and luxury
items and tourism, realising benefits of
gold during a crisis.

He said, a section of customers said that

the Ukraine-Russia war is a reminder for
them that if a family is displaced, assets
like gold can be taken along and not real
estate properties which have to be left
behind.

So this was another event that

contributed to the sales of gold this year.

Slide 3

Future
Gold price in India has managed to move
above the Rs 50,000 mark after long time.
Price of ten gram of gold has moved
upwards from levels of around Rs 47000
as seen during Akshaya Tritiya 2021 to the
current levels of about Rs 51,000 and the
demand of gold may keep the prices at
higher levels in the future.

Domestic gold prices are up about 8% Y-o-

Y as of April 29, 2022. Gold prices were
range-bound for much of the past year
prior to the Russia-Ukraine war.

Several latest developments may continue

to impact the gold price at least in the
near future. “Gold is likely to find support
over the near term supported by
geopolitical tensions, the likelihood of a
stagflation scenario (low growth and high
inflation) and on recovering local demand.
However, rising interest rates are negative
for gold as the cost of holding it rises,
besides gold is a non-income generating
asset.

With soaring inflation in most countries,

gold may return to its label of a hedge
against inflation. Inflationary pressure is
not expected to come down soon which
may lead to underperformance of equity
assets and diversion of funds to Gold
assets. Thus, Gold which has given about
17% annualised return in the last 3 years
is expected to shine further.

Gold Investors

In addition to equity mutual funds, PPF,

NPS and other investments, one should
diversify across gold. Having a proper
asset allocation plan helps in the long run.

Gold is a long-term asset and investors

should not be worried about it in the short
run. It is suggested to stay invested and
one can make an investment in gold
ignoring the market timing when investing
for the long term. 5-10% of your portfolio
should be dedicated towards gold as it
ensures averaging out any losses in the
portfolio in the long term, during market
falls or acting as a hedging tool.

So, to conclude if you are looking to invest

in gold you should do it now and you
should do it for a long term.