The Reserve Bank of India was the largest buyer of gold among all central banks in the third quarter of 2021. India’s gold reserves grew by 41 tonnes to 745 tonnes during this period. It also marks a slight increase in the pace of buying by the RBI. In fact, central bank demand in general has been one of the highlights of the gold market this year. India’s gold purchases have helped arrest a slowdown in acquisitions by other central banks. And the trend is seen set to continue in the coming quarters. According to estimates, 2021 looks set to see the biggest annual increase in India’s official gold reserves since 2009.

A similar trend is noticed in the demand for domestic investment in terms of bars and coins. The third quarter bar and coin investment increased 27 percent year on year to 43 tonnes on pent-up demand and the gold price dip. Aligned with jewellery consumers, bar and coin investors responded to the sharp price dip, and lower average quarterly price, by adding to their holdings. The price effect was heightened by the release of pent-up demand as lockdown restrictions eased. Although investors were tempted by equity market strength, with Sensex touching all-time highs they have remained wary of possible corrections amid the high valuations. This encouraged investment in gold for diversification purposes.

According to World Gold Council, Jewellery demand in India in the third quarter increased approximately 60 per cent both on a quarterly and yearly basis due to strong pent-up demand, a rebound in economic activity and lower gold prices. Having been locked down for much of the second quarter to deal with the severe second wave of Covid, jewellery demand bounced back sharply in the third quarter. An acceleration in the vaccination programme and a strong end to the monsoon season further boosted consumer sentiment.

Occasion-related gift buying witnessed a strong comeback and demand was buoyant ahead of the two-week inauspicious Shraddh period which fell at the end of September. Retailers anticipating strong demand during the fourth quarter wedding and festive season built up their inventories in preparation amidst reports that the quarter has indeed got off to a brisk start. The season, which has a higher number of auspicious wedding days, bodes well for jewellery demand for the remainder of the year, especially because the good monsoon is expected to support rural incomes. The only rider is the potential for further waves of Covid and lockdowns, which as of now appear to have ebbed significantly.

An interesting trend in the gold jewellery demand has been a new regional shift. At a regional level, Northern India outperformed the South as some Southern states, notably Kerala, were impacted by higher Covid cases and restrictions on store operating times. But this is expected to change in the weeks to come as the situation is continuously improving in the affected states.

The government has introduced mandatory hallmarking, which the industry is smoothly adapting to. This is expected to ultimately improve transparency and give consumers greater confidence in the purity of the gold they buy. Another significant development is the launch of digital platforms, further opening the channels for gold investors. The launch of digital gold platforms by retailers such as Titan, Kalyan and Senco Gold provides investors with a convenient way to make systematic investments in gold for as low as Rs 100.

Another notable industry development is the continuation of policy reforms related to domestic spot gold exchange and international bullion exchange. During the third quarter, the Securities and Exchange Board of India (SEBI) approved the framework for a domestic spot exchange. Meanwhile, the International Financial Services Centres Authority (IFSCA) launched the India International Bullion Exchange (IIBX) on 1 October 2021. These exchanges, intended to empower bullion banking and establish India as a major bullion trading hub, may also help with the successful implementation of the gold monetisation scheme and the development of gold-backed products. (IPA Service)