Akshay Tritiya is considered an auspicious occasion to start new things and make valuable purchases including buying.
Indians have a special attachment to gold and over the years we have continued to import huge quantities to fulfil our insatiable desire for the metal.
While Indian attraction to gold is unparalleled, demand is highly growth and price sensitive. Last year, based on World Gold Council data, Indian consumer demand fell over 35% which also led to a sharp drop in imports. Indian and global economy contracted sharply last year as COVID-19 related restrictions impacted economic activity. Meanwhile, gold prices jumped to record high levels both in domestic and international markets.
The scenario has however changed this year. Growth outlook has improved significantly while gold prices have also corrected sharply from the highs. Correction in global gold price coupled with Indian government’s decision of lower import duty has pulled domestic prices well off the highs.
However, we are in a different and difficult situation at present and it is set to reduce the golden appeal of this festival. India is currently facing a second and much severe COVID-19 wave and many states have imposed strict restrictions while calls are increasing for a national lockdown.
The restrictions have already started to impact activity in the physical market as is evident from domestic gold price trading at a marginal discount to international prices.
Given the rising graph of virus cases in many states it is likely that we may see subdued activity this Akshay Tritiya. However, there are still enough reasons to remain invested in gold so what may happen is a possible delay in purchases which may return once the situation normalizes.
Gold corrected sharply as researchers found success in the vaccine for COVID-19. However, the slow and uneven vaccination process and the multiple waves of infection seen in various countries reflects that the pandemic is far from over and this may keep gold’s safe haven allure high.
Furthermore, the huge monetary and fiscal expansion done in the last few months threatens to show effect in the form of currency devaluation, inflation, rising deficits and market players may want to remain invested in gold to safeguard themselves. We are already seeing some nervousness in equity markets and even a sizable correction may benefit alternative assets like gold.
Historically, Indian gold demand is largely concentrated in jewellery however its importance as an investment vehicle has risen in these uncertain times. Investment appeal for gold has also risen amid increasing alternatives. Apart from buying physical gold, investors can invest in gold linked assets like sovereign gold bonds, gold ETF, gold mutual fund or gold derivatives where one can invest in the metal and benefit from the price movement without actually holding the metal.
–Ravindra Rao – CMT, EPAT, VP- Head Commodity Research, Kotak Securities