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A report by the World Gold Council (WGC) released on Thursday showed that demand for the precious metal for the second quarter of 2022 rose 43% from a year earlier. Somasundaram P.R., regional CEO, India, WGC, comments on what drove this and whether the trend will continue. Edited excerpts of an interview:

What drove gold demand in the second quarter, and will the trend continue?

If you look at absolute figures in the second quarter, the demand of 170 tonnes is not extraordinary. If we compare it to the last five year’s average, it doesn’t stand out.

There’s going to be uncertainty in the second half of this year given the various geopolitical factors–oil prices are rising, inflation is biting, the US is seeing unprecedented inflation of 9%, Fed rates are going up, and so on.

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

The report said jewellery demand might face downside risks 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 between 2019 and 2021 saw a massive jump of about 55-60%. In that sense, a 5% jump in duty alone is not going to be seen by the consumer in any way because prices have jumped significantly in the last two years.

In the short run, it will be a trade issue as the compliant traders will struggle with the increase in cash dealings in grey markets.

Gold investments in the second quarter of 2022 declined by nearly 27% compared to the first quarter. What could be the reason for that?

One of the important ingredients for 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 like to buy slightly ahead of the increase.

In the quarter ending June, it was neither here nor there. Prices were volatile, and the lack of momentum in price at a time when inflation was increasing kept people away from bars and coins.

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