Domestic demand for gold to see spike in sales, touch pre-pandemic levels: Parag Shah of HK Jewels

Hedge against geopolitical crisis

The ongoing Russia-Ukraine turmoil gives consumers more reasons to buy gold on this Akshaya Tritiya. The prolonged global crisis, which is seeing a high inflationary trend globally, has found solace in gold as a safe bet for investment purposes. The geopolitical situation changed after Russia announced a fixed price for buying gold with roubles. With a RUB 5,000 (£45.12) for a gram of gold, probably, it’s the first time that a nation’s currency has been expressed in “gold parity” since Switzerland decided to stop doing so in 1999. The international gold prices briefly surged beyond USD 2,000 per ounce, testing lifetime highs, before receding quickly.

Due to the ongoing geopolitical tensions, global stock markets are volatile and have corrected significantly from the recent highs. Global equity markets are expected to remain null with no fresh clues, keeping gold shining. Also, consumers have started to resort to the traditional way of buying gold and this Akshaya Tritiya to ward off inflation is an excellent opportunity to add more.

Rising inflationary trends should be conducive for gold, implying investment demand for yellow metal will likely increase in the coming months. The incremental flow of new investors in the crypto space may also move towards buying physical gold. This re-alignment is likely to prolong, and hence, prices of gold are expected to maintain traction.

All these factors will keep gold prices firm and intact. Spot Gold prices rallied 9.87 percent from Rs 48,157 per 10 gms (995k) on January 1, 2022, to Rs 52,912 on April 14, 2022, effectively countering March 2022 retail inflation of 6.95 percent announced by RBI on April 12 2022. London Fix gained from $1811.40 per troy ounce as of January 04, 2022, to USD 1963.25 as of April 14, 2022, an increase of 8.38 percent.

Also, uncertainty on crypto price movement and lack of understanding make it easier for ordinary people to opt for physical gold. Veteran investors mentioned holding 10 percent in gold as currencies would be devalued. Some broking houses expect prices to reach Rs 55,000-56,000 per 10 grams in the near term or more over the next 12-15 months.

Lower-income buys more gold

The gold and gold markets 2022 report by India Gold Policy Centre (IGPC) states that people from middle-income groups purchase more gold. They prefer to have the yellow metal in the physical form, while people in the higher income group are interested in having it in digital or paper format. Per capita consumption of gold is the highest among the rich, but the total volume still rests with the middle-income group. Interestingly, households in the annual income range of Rs 2-10 lakh consume an average of 56 percent of the volume. The survey was carried out among 40,000 households.

Expect a sharp rise in sales

In 2019 (pre-pandemic), on the day of Akshaya Tritiya, the business of solid gold and jewellery trade for about 29,000 kgs (Rs 10,000 crore) on Akshaya Tritiya when the rate of Rs 35,000 per 10 gram of the gold. Assuming lower sales of 20,000 kilogram due to higher price at Rs 50000 per 10 gms, the Akshaya Tritiya market is estimated to reach pre-pandemic levels of Rs 10,000 crore.

The author is Director, HK Jewels

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