Gold prices in India and around the world continued to hit new highs in July 2020. The precious metal surged 28% this year to more than ₹50,000 per 10 grams.
Government measures to ease the economy, as seen in different parts of the world , resulted in appreciation in the price of assets like gold.
The price rise dampened retail demand for gold in India which is the world’s second largest consumer of the precious metal
The rising number of COVID-19 cases, along with the weakness in the U.S. dollar, was the driving force behind the surge in precious metal prices.
Concerns around U.S.-China tensions too increased safe-haven demand for precious metals.
Retail buyers of ornaments are putting a substantial portion of their lifetime savings into gold.
While big-time investors are betting big on a favourable outcome since the COVID-19 crisis is triggering lower expectations from assets such as crude, dollar, and government debts.
Gold is being looked upon as a safe instrument to ensure future returns.
Gold jewellery retailer Joy Alukkas says, Indian gold ornaments market mostly comprises seasonal household purchases, which have not been affected.
India imports all the gold it requires. In April and May 2020, the gold imports fell by 99%.
According to the World Gold Council, an estimated 22,000-25,000 tonnes of gold are lying as assets with Indian households, which is the largest in any country. Rural India accounts for 65% of this gold stock.
The liquidity crunch caused due to the COVID-19 pandemic, while India was already sputtering because of a banking crisis, has lead many Indians to turn to gold as both investment and collateral. People have pledged their gold in exchanged for liquidity.
The rise in gold prices have been a boon for gold-loan takers as it also leads to a rise in value of the gold pledged.