Mumbai (Reuters) – The World Gold Council said on Thursday that India’s gold consumption is expected to rebound in 2021 after falling to a 26-year low last year as pent-up demand and high economic growth are expected to boost sales.
Rising purchases by the world’s second largest consumer of bullion could support gold prices, which hit a record high last year, although that could increase India’s trade deficit and weigh on the struggling rupee.
The World Gold Council said in a report published on Thursday that the lockdowns led by the Corona virus reduced gold demand in India by 35% in 2020 to 446.4 tons, the lowest level since 1994.
However, demand is expected to rebound in 2021 to around 2019 levels as economic growth is expected to rebound with the help of reduced Covid-19 cases, said Somasundaram PR, managing director of India’s WGC Operations.
The International Monetary Fund said on Tuesday that India’s economy is expected to grow by 11.5% in 2021.
With lockdowns easing and normalization efforts implemented in phases, imports in the December quarter rose 19% year-over-year, indicating the positive effect of pent-up demand. “This can be expected to continue until 2021,” Sumasundaram said.
The WGC said India’s gold imports of 164.4 tons in the December quarter were the highest in six quarters, driven by improved demand during major Hindu festivals at Dussehra and Diwali.
Somasundaram said that investment demand in India rose 8% in the December quarter of the year to 48.9 tons, the highest level in two years, as people boosted their purchases of gold coins and bullion in expectations that bullion prices would rise further.
We will see a sharp increase in investment demand. Amid low interest rates and rising equity prices, people are looking to gold to diversify their investments.
The World Gulf Council said that the demand for gold in rural areas in the past few months has been strong after excess monsoon rains that resulted in a record harvest of summer-grown crops.