India's January-March gold demand falls 36% due to volatile prices, economic uncertainties: WGC

"Indian gold demand in the first quarter of 2020 dropped due to a combination of factors such as high and volatile prices, economic uncertainties and towards the end of the quarter, severe logistical freeze following lockdown," he added.

Meanwhile, total jewellery demand during the quarter also declined by 41 per cent at 73.9 tonne compared to 125.4 tonne in January-March of 2019. In value terms, jewellery demand saw a drop of 27 per cent at Rs 27,230 crore as against Rs 37,070 crore in the same quarter of 2019.

"Wedding demand during the first few weeks of the quarter did appear to bring in some seasonal cheer. However, later developments, more particularly since the beginning of March, disrupted the market and consumer confidence, resulting in a sharp drop in jewellery demand by 41 per cent," Somasundaram said.

The total investment demand in the first quarter of 2020 was down by 17 per cent at 28.1 tonne. In value terms, however, gold Investment demand was up by 4 per cent on a year-on-year basis at Rs 10,350 crore.

"Investment demand, though lower by 17 per cent at 28.1 tonnes, was relatively better as sentiments towards equities turned negative and investors turned to gold's liquidity and safe haven status," he said.

Commenting on COVID-19 and its impact on the industry, he said a digital transformation of the industry could be a positive outcome of the current crisis, as social distancing, contactless payments and other behavioural necessities challenge earlier forms of consumer engagement.

"Going forward, we are unable to quantify the impact on full year demand as we do not have sight of several critical factors at play under current circumstances. It is going to be a challenging year unless the industry is able to get the artisans and reorganise the supply chain in quick time," Somasundaram added.

Meanwhile, the total gold recycling in the country grew by 16 per cent in Q1 2020 at 18.5 tonne.

Somasundaram said recycling and collateralised loans against gold may be expected to grow exponentially due to high gold prices in the next few quarters as the immediate economic impact of the lockdown becomes evident and hopefully, fundamental reforms follow, easing business sentiment.

"In that scenario, it is possible that gold becomes a tool for revival of many SME businesses and household fortunes. This perhaps presents an opportunity that could revive GMS (Gold Monetisation Scheme) in a consumer-friendly manner.

"Consumer sentiment could receive a boost with the arrival of a normal monsoon as predicted by IMD. Issues of integrity of gold and right price will receive greater consumer attention as gold prices test affordability,” he added.