Price action not enough to boost gold demand

What drove the demand for gold in Q2 and will this trend continue?

Going by the absolute figures for the second quarter, the demand for 170 tonnes is not extraordinary. If we compare it with the average of the last five years, it is no different.

The second half of this year is going to be uncertain given various geopolitical factors – oil prices rising, inflation easing, US seeing unprecedented 9% inflation, Fed rates rising , and so on.

There is interest in gold, but price volatility is not enough to motivate people to buy gold in large numbers. It will be a wait and watch game. So, like last year, it is best to see how the fourth quarter of Dhanteras and Diwali performs.

The report said that there could be a risk of decline in jewelery demand in the second half of the year. How much will the increase in import duty contribute to this?

Not much in the current scenario. Gold prices saw a huge jump of around 55-60% between 2019 and 2021. In that sense, a 5% jump in tariffs alone is by no means observable by the consumer as prices have jumped significantly in the last two years.

In the short term, this will be a trade issue as compliant traders will struggle with the increase in cash transactions in the gray market.

Gold investment declined by about 27% in the second quarter of 2022 as compared to the first quarter. What could be the reason for this?

One of the key ingredients to the performance of bars and coins is a strong price trend. Either it should drop significantly, in which case people rush to buy it, as we saw in 2020, or you should see a clear uptrend when people choose to buy slightly ahead of the rise.

It was neither here nor there in the quarter ended June. Prices were volatile, and at a time when inflation was on the rise, the lack of momentum in prices kept people away from bars and coins.

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