Demand for Gold Jewelry Plummets in India and China, Investment Demand Keeps Rising

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With gold prices hitting a seven-and-a-half year high last week, the coming weeks will undoubtedly get very interesting. As more stimulus packages are announced globally, the price is likely to remain near the high end of the spectrum.

The global coronavirus impact is still very difficult to gauge properly, even at this point in time. One thing seems certain: demand for precious metal jewelry is taking a nosedive in a lot of countries.

Gold Jewelry has Little Demand These Days

It is evident that the coronavirus is making  a lot of people rethink their approach to daily life. While some things will never really change, the current demand for jewelry pertaining to both gold and silver is decreasing significantly. This trend is primarily noticeable in China and India, with  other countries likely to follow fairly soon. 

Research by Capital Economics paints a somewhat bleak picture in this regard. Gold imports by major consumers are decreasing at a nearly alarming rate. This leads the group to believe that demand for gold and silver jewelry is taking a significant hit under the current circumstances dictated by the global coronavirus crisis.

During the first two months of 2020, gold imports decreased by 50% compared to the same period in 2019. Shanghai’s gold exchange withdrawals reduced by 58% in the same period. Stopping this momentum will pose its own set of challenges, albeit things may improve at some point in the future.

Gold jewelry demand itself may not necessarily rebound anytime soon. The main reason for that outlook is how gold maintains a very high value, especially in Chinese Yuan. Consumers are still uncertain in terms of resuming demand for gold jewelry, as there are still ample concerns regarding the coronavirus today.

A somewhat similar situation has been created in India. Following a 73% decrease in gold imports and inflated local currency prices, demand for gold jewelry simply isn’t there. India has always been a price-sensitive market. As domestic gold purchases have virtually ground to a halt due to the coronavirus, there is a chance that this trend will grow even worse in April.

A Rebound Remains Very Likely

It will be crucial to keep an eye on what happens during the second half of 2020. If China and India can resume their economic growth and household spending increases, these figures may look very different in the coming months. If gold demand picks up again, it will undoubtedly have a price impact as well.

Investment demand for gold is not suffering from this lack of interest gold jewelry has to contend with. Capital Economics expects the coronavirus to keep playing a prominent role in this regard. At the same time, the firm expects prices to come down once the global COVID-19 situation is under control. If and when that will happen exactly, remains somewhat uncertain.

With gold prices hitting a seven-and-a-half year high last week, the coming weeks will undoubtedly get very interesting. As more stimulus packages are announced globally, the price is likely to remain near the high end of the spectrum. Sustaining this level of growth when the world returns to normal, is a different matter altogether. 

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