Why are Indian families selling Gold during the Corona virus pandemic?

Demand for gold has undoubtedly increased this year. But at the same time, many Indians are selling out their gold possessions. 

Many traders and investors are considering gold as a hedge in their portfolios. Even global investor giants are eyeing this safe haven asset as an alternative to withstand the Corona virus pandemic. 

Investors are trying to get their hands on more gold coins, bars and exchange traded funds: The Wall Street Journal reports.

This precious metal is becoming more attractive to those seeking shelter from geopolitical tensions, presidential elections and US- China concerns. This is the reason why the price of this metal has seen an all time high in the year 2020.

World’s largest consumers of Gold

India is the world’s second-largest consumer of gold after China. Jewelry demand in India, plunged by 74% in the three months through June, according to the World Gold Council. 

That is 124 metric tons less gold jewelry than a year earlier. Reportedly, this is equivalent to the amount of gold that the US buys in a year. To top it all Indians are selling out their safe haven asset these days.

Reasons behind the selling out

While demand is rising worldwide, many Indian families are selling out this metal to meet their day to day expenses. Undeniably, the pandemic had a worse impact on small businesses and struggling Indian families. A huge percentage of them lost their jobs and many others are struggling to pay their loans and interests. 

In such a situation, this precious metal is the best possible way to earn liquid money to cope up with the uncertainties. Thus many people are either selling out the metal or borrowing loans with gold as collateral. It is one way to arrange quick cash, when people run out of money and when they are in urgent need of cash.

Reportedly, India’s central bank last month acknowledged gold-backed loans as an important avenue of finance, easing restrictions on this metal lending by allowing loans of up to 90% of the value of the precious metal held as collateral, up from 75%. That means borrowers can get 20% more cash for their collateral.

The Gold price imbalance

There is an imbalance of supply and demand in the Indian gold prices. This is considerably lower than global prices. India’s prices have been as much as $70 an ounce less than the global benchmark; reports show.

Due to the shutdowns and related fear of the pandemic, only few are visiting the jewelry stores. Apart from that most of the weddings are cancelled, which are the major source of this metal’s demand. This is one reason for the price imbalance.

Covid impact

India has the world’s biggest reservoir of this metal in the form of bracelets, nose rings and other ornaments. It has more than 25,000 tons of it as jewelry.

Even then, India reported the worst impact due to Covid-19 than any of the world’s major economies. The country recorded a 23.9% drop in gross domestic product in the three months ending in June, compared with the same period a year earlier: WSJ reports.

The biggest consumers of this metal are facing tough times due to the corona virus pandemic. 

But there are rising optimistic forecasts from experts. “- Annual sales in India of recycled gold, or used jewelry, could jump to a new record of more than 120 metric tons.”  Says P.R. Somasundaram, managing director for India at the World Gold Council.

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