For centuries, gold has held a special value and is the most sought-after long-term investment & asset class. India is a gold obsessed country and the households own approximately $1.3 trillion just in the form of domestic gold. Along with the emotional & traditional value of gold, it is known to be a saviour in unpredictable times by acting as a hedge against inflation.
The past 2 years has been a roller coaster for trade, businesses and economies around the world. The pandemic along with other global factors has made gold more volatile than ever. Where the price of gold skyrocketed at the peak of the pandemic in India to an all-time high of Rs. 56,200 per 10 gm in 2020 on the MCX, the demand and imports were majorly affected by the on and off restrictions and lockdowns. In 2020, when the world was new to the coronavirus and still coming to terms with the appropriate protocol, many events, weddings and festivals had lost their usual celebratory zeal and were postponed or made low key. However, the year that followed, came with a new hope, a revival of sorts for all aspects of the economy and most importantly commodities like gold seeing a leap of 79% in consumption. With the unpredictability of life, businesses and finances being pushed into a chaotic halt, people understood the value of gold more than ever. It seemed like the only safe, long-term investment instrument.
Apart from this, the pent up demand from the previous lockdowns consistently continued to stimulate gold purchases and imports. In fact India has almost doubled their imports in the past year from $22 billion to $55.7 billion.
The current gold rate is around Rs.45000 per 10 gms for 22k & Rs.48000 for 24k.
Given the uncertainties arising due to newer variants and fresh waves of covid hitting the nation, buying gold as a safe haven has become a common practice and investors are predicting at least 3 rate hikes in the coming year-2022. According to industry leaders and a general analysis of consumer behaviour, the gold demand predictions are set to keep rising, considering a substantial amount of unmet demand is still in the market. However, this demand will mainly be investment driven.
Speaking of global factors like the European conflicts, US policy changes, currency stimulation etc; while these factors do have an effect on the rate and demand for gold in India, these mainly remain directly correlated to the country’s consumption & love for gold, rather than external factors. The consumption & demand for gold is set to rise to new heights in 2022 due to higher inflation and possible weakness in the rupee due to the widening trade deficit.
Overall, the position of gold in 2022 is largely dependent on which factors would prevail stronger and longer. While inflation & wedding industry will fuel the demand, the rates are expected to increase which may create some waves. If the rates of gold remain volatile, its innate value as a highly liquid asset which could act as a hedge against inflation will remain consistent. This is one of the most important driving factors for gold during these unpredictable covid times.