December one of the best quarters for gold demand in the long run: Somasundaram PRO

Edited excerpt:

Can you give information about the demand for gold in the third quarter?

In India, there was a complete lockdown last year, so whatever sales happened was essentially due to some centers reopening in September. So, compared to that, we have a jump of 47%. Last quarter’s total demand was 139 tonnes, and is even better than what we saw in the third quarter of 2019. While demand grew by only 47%, imports actually grew by 187% in the third quarter. So, as against 89 tonnes last year, we had a total import of 256 tonnes in the last quarter.

What kind of demand are you expecting this festive season?

What we are seeing is that imports have outpaced demand. Trade sentiment is very high and stocks are getting ready for the festive season. Obviously, these prices are very attractive because people have also seen the height of ₹55,000. We also feel that we have a better grip on the pandemic. Monsoon has been very good, so it is going to give more income in the hands of rural and Tier III, Tier IV customers. Above all, we also have social functions like marriages, and more auspicious days than you have seen in this quarter. So, a combination of all these is going to make December the best quarter we have seen in many years.

Can you number the level of demand?

It’s a little hard to give estimates, but I can give you the figures we’ve seen in the past. The fourth quarter of 2014 saw a demand of 226 tonnes. then 236, 244, 242, 236, 194 and 186 tons; Thus it has carried forward for Q4 of each year. In the demonetisation quarter also it was 244 tonnes. So we are talking about 240-220 or say 200-250 tonnes of demand for the December quarter this year.

The highest ever demand for the December quarter was witnessed in 2010 at 296 tonnes.

Can prices be expected to rise once demand returns?

No, actually, what happens is that the demand does not drive up the price of gold. The demand for gold reacts to the price in the short run. In the long run, demand has a significant effect on price – no doubt about it. But in the very short run, it is the factors like inflation, monsoon, tariffs, price, which drive the demand. We recently released a report called ‘Drivers of Gold Demand’ which stated that a 1% increase in inflation leads to a 2.76% increase in demand. Indeed, investment demand increases by 4%. In the short run, demand is not a factor. This is higher than US interest rates and other geopolitical factors.

What is the demand for digital gold in India?

Digital gold is sold by two refiners and one marketplace. It has certainly caught the fancy of millennials, young people and small savers as it is available 24×7. It’s certainly grown, but it’s still — all put together — a very small part of the market. Digital gold is a transparent form of purchase, it is transparent on price, absolutely safe on purity, and insolvency proof and all these features are very positive. Given all this, it is bound to grow. At this time, it is limited to small-ticket wallets. Overall it is not big on volume, but in terms of its impact on the gold market, sentiment and people’s ability to buy gold, I think it will be one of the biggest changes the market has seen. . This could be a big deal, provided there is a regulatory framework that the industry is working on.