Gold prices are falling and the world’s biggest market for the yellow metal is hoping for more shoppers

• Gold prices are falling for the third consecutive week as the Indian economy recovers and the number of COVID-19 cases decline.
• The diminishing value of the yellow metal is good news for customers looking to buy up gold ahead of the summer wedding season and Akshaya Tritiya.
• Jewellers are optimistic that the fall in the price of gold and the upcoming festival season will drum up demand for the physical product.

Gold prices are finally falling after a year of being on the rise. And, people in the world’s biggest market for gold, India, are taking advantage of the opportunity.

Benchmark gold futures in the country have dropped 20% from a record high in August last year of ₹56,200. They are basically a deal to trade gold at terms decided now but with a settlement date in the future.

Moreover, as compared to the beginning of 2021, gold prices are down by over ₹5,000 from highs of ₹48,500. This means the precious metal has technically entered bear territory.

“Gold prices fell for the third consecutive week as risk on sentiments kept investors away from precious metals,” said HDFC Securities in its report dated March 8.

For consumers, there couldn’t be better news with the summer wedding season just around the corner and Akshaya Tritiya — pegged as an auspicious day to buy gold — falling on May 14.

Why is the price of gold falling?
Simply put, consumers are no longer looking for a safe haven store of currency. During the coronavirus pandemic, the markets were volatile and rates offered by banks were sub par, giving gold the edge over others as a store of value.

Now that the number of COVID-19 cases are slowing down and the economy is on the track to recovery, gold prices are coming back down. Investors are instead putting money into US government gold yields to earn higher returns.

“Gold prices declined on a stronger dollar as traders and investors switched to the best alternative to gold.” noted HDFC Securities. As a result, the dollar index rose by 1.2%.

Government officials told Bloomberg that imports have jumped 41% in February to the highest that they’ve been since November 2019, which is another indicator of demand coming back.

It’s time to buy up gold
Last year may have been stellar to buy gold on the commodity exchange, but physical consumption was in the pits. According to the World Gold Council (WGC), the demand for jewellery plunged by 34% in 2020 as compared to the year before.

Now, the demand for physical gold is seeing an uptick as prices dip to a near one-year low. It also helps that the Modi administration reduced import duty on the yellow metal from 12.5% to 7.5%.

"GJC had been representing this concern for many years and we are glad that the government has acknowledged it and reduced the import duty," said chairman of All India Gem and Jewellery Domestic Council (GJC) in a statement.

Lower prices, however, are only one part of the picture. In India, gold holds an important place in Indian weddings and the summer wedding season is set to occur between mid-April to May.

Jewellers are also hoping that Akshaya Tritiya — the second-most auspicious day to buy gold for Hindus after Dhanteras — will also lead to a surge in demand. “The festival and wedding looks good. The investment demand has come back, and the jewelry demand will come in after the rates stabilize,” said Ashish Pethe, chairman of the All India Gem and Jewellery Domestic Council in a statement.

He believes that the demand will also see a boost since a lot of weddings that were postponed in 2020 due to the coronavirus pandemic will be scheduled for 2021.

Brokerage HDFC Securities expects gold prices to remain low in the coming week, unlikely to dip below ₹44,000 per 10 grams. Analysts believe the rates of precious metal may continue to fall given the sharp recovery in economic activity and a slowdown in COVID-19 infections.

However, gold could turn bullish again if central banks choose to step in. Sovereign debt for all countries has increased during the pandemic and the balance sheets are bloated in the face of public expenditure.

“We do not think yield will sustainably rise given the fact that governments do not favour higher yields on their accumulated gigantic debt,” said the lead analyst of institutional equities at YES Securities, Hitesh Jain. Rising rates of yields — the interest rate that the government has to pay out for borrowing money from the market — is not favourable with high debt.

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