India's gold demand declined 18% to 135.5 tonnes in the first three months of this year, mainly due to a sharp rise in prices, according to the World Gold Council (WGC).
The demand stood at 165.8 tonnes in the first three months of 2021.
In terms of value, gold demand dropped 12% to ₹61,550 crore in the January-March period. It stood at ₹69,720 crore in the year-ago period, the 'Gold Demand Trends Q1 2022' report released by the WGC said.
WGC Regional CEO, India, Somasundaram P. R. told PTI that gold prices began rising in January, increasing by 8% to ₹45,434 per 10 grams (without taxes) in the first quarter of this year, mainly due to geopolitical tensions.
In comparison, the prices were at around ₹42,045 crore in January-March 2021 period.
As per the report, total jewellery demand in the country during the latest March quarter fell 26% to 94.2 tonnes. It was at 126.5 tonnes in the same period last year.
In terms of value, jewellery demand plunged 20% to ₹42,800 crore in the first quarter of this year. The same was at ₹53,200 crore in the year-ago period.
"After rising to record levels in the fourth quarter of 2021, India's gold jewellery demand fell by 26% year-on-year in the first quarter of this year to 94 tonnes. Since 2010, barring the pandemic periods, this is only the third time the first quarter total has been below 100 tonnes," Mr. Somasundaram said.
Further, he said that fewer auspicious days coupled with a sharp rise in gold prices meant fewer weddings and a pause in retail demand, with households postponing gold buying in anticipation of a price correction.
This year, he said the overall demand for gold is likely to be around 800-850 tonnes.
Total investment demand for gold increased 5% to 41.3 tonnes in the latest March quarter compared to 39.3 tonnes in the same period a year ago.
According to the report, in value terms, gold investment demand was up 13% at ₹18,750 crore. It was at ₹16,520 crore in the same quarter of 2021.
Investment demand, primarily gold bars and coins, however, grew 5% to 41 tonnes, rising prices and volatility in equity markets acting as support, Mr. Somasundaram said.
The Reserve Bank of India (RBI) continued to buy the yellow metal and bought 8 tonnes during the first quarter of this year, he said, adding that the central bank began buying gold from late 2017, and since then, have bought 200 tonnes.
During the first quarter of 2022, total gold recycled in the country surged 88% to 27.8 tonnes. The same was at 14.8 tonnes in the year-ago period.
Total net bullion imports in the latest March quarter fell 58% to 132.2 tonnes as against 313.9 tonnes in the same period of last year.
With safe-haven demand and rupee depreciation pushing gold prices above ₹50,000 per 10 grams, Mr. Somasundaram said discussions with traders revealed that most of the buying was of lower ticket items such as 10 grams and below.
"Overall, Indian gold demand fell 18% this quarter and with recycling up by 88%, net bullion imports for the quarter was lower by 58% year-on-year. The hiatus in growth could be a result of mixed sentiments in the market about price, uncertainty about COVID caused by news in the neighbouring market, fear of inflation and long term impact of the global conflict," he said.
Geopolitical uncertainties, especially in the wake of the Russia-Ukraine conflict, is expected to push more investors to buy gold for diversification as well as hedging purpose.
"The impact of revival in the rural markets, more particularly with the forecast of a normal monsoon for a fifth consecutive year, is likely to be significant for gold in 2022," Mr. Somasundaram said.
