A combination of galloping prices and purchasing power not keeping pace in the Covid-19 induced lockdown could have an adverse impact on Indian gold demand in 2020. With bullion prices hitting a record high and expectations of the current rally to persist amid global cues, demand could fall to its lowest level in 26 years.

The demand for the yellow metal fell 70 per cent by volume in the April-June quarter of 2020. Jewellery demand at 44 tonnes was lower by 74 per cent and investment demand at 19.8 tonnes was lower by 56 per cent, according to quarterly data of the World Gold Council.

For the first six months of the calendar year, jewellery demand at 117.8 tonnes was down 60 per cent and investment demand at 47.8 tonnes was down 39 per cent.

The industry is keeping its hope up for a better second half driven by festive demand but the headwinds in the form of high prices and income growth affected by the pandemic could prove to be a dampner for overall demand.

“Fast rising gold prices could act as headwind. Price is currently at a life-time high of over Rs 50,000/10gm, a key milestone and response is naturally mixed with content investors and wary consumers. To put it in perspective, gold prices have risen by 60 per cent since January 2019 and 20 per cent since January 2020; income growth or expectation have not kept pace with this,” said Somasundaram PR, managing director of WGC’s Indian operations.

“Online buying convenience played a significant part in consumer behaviour during lockdown as we saw Gold ETFs grow after being dormant for many years.

Digital gold too saw significant activity though volumes are yet negligible in the overall demand scenario,” he said, adding that logistical issues and poor demand has crashed imports 95 per cent to a mere 11.6 tonnes.