The sharp decline of 36 per cent in gold demand in India within the March 2020 quarter, as revealed within the newest report of the World Gold Council, bodes properly for the nation’s exterior account. However the intense volatility in fairness and bond markets has made buyers gravitate in direction of gold over the previous two years, and the Centre ought to make sure that it offers such buyers viable choices to put money into non-physical gold comparable to gold trade traded funds and sovereign gold bonds. There was a structural decline in jewelry demand in India over the previous decade, attributable to elevated gold costs in addition to shifting preferences of the inhabitants, away from conventional modes of decoration. Gold jewelry demand in 2019 was 9 per cent decrease than within the earlier yr. Curiously, demand for gold bars and cash has additionally been declining and was 10 per cent decrease in 2019 in comparison with the earlier yr. Larger scrutiny by the federal government and the problem in storing bodily gold appears to be pushing buyers away from bodily gold in direction of paperless types. This shift should be inspired, as it will possibly result in larger transparency and decrease tax evasion.
With the Covid pandemic rising the demand for protected haven property, gold has managed to ship a sterling 48 per cent return in rupee phrases over the previous one yr. The yellow steel has been surging since 2019, because of the escalation within the US-China commerce conflict. The floundering world financial system together with the destructive affect of the big stimulus spending on currencies, is more likely to preserve the demand for gold sturdy. However regardless of the rally, demand for gold bars and cash declined 16.5 per cent in March quarter this yr, in comparison with final yr, whereas demand for gold ETF elevated 31.four per cent. Additionally, the sovereign gold bond issuances this yr have discovered good curiosity. However the liquidity in secondary marketplace for each gold ETFs and sovereign gold bonds is kind of low, leading to poor value discovery and hassles to buyers who want to promote these devices on exchanges. Whereas sovereign gold bonds will be offered again to the RBI, it’s potential solely when the buyback window is open. The Centre can think about mandating market makers within the SGB and gold ETF counters to extend liquidity.
Additionally, whereas promoting SGBs is relatively simpler, buying is rather more troublesome for retail buyers, as most brokers don’t facilitate this. It’s because inter-depository settlement shouldn’t be fully in pressure on this safety. It might assist if the regulator appears into this problem and offers the mandatory instructions to exchanges, clearing firms and depositories to handle the issue. Since SGBs are a superior possibility in comparison with different gold funding routes, because of the curiosity paid to the holder and the sovereign assure, the Centre ought to do all it will possibly to make this instrument extra enticing.