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Gold demand in India was strong in May with retail sales rebounding and imports up both month-on-month and year-on-year.

Gold demand in India was strong in the last half of 2021 as the economy recovered from another surge of COVID-19. Demand fell off this spring due to rising gold prices in rupee terms, but it has rebounded in recent weeks.

Retail gold demand remained strong year on year during the first three weeks of May due to robust Akshaya Tritiya sales and high wedding demand. Sales flattened predictably in the last week of the month due to fewer auspicious marriage dates. The price of gold also rose during the last week in May, dampening retail sales.

On the investment side, Indian gold ETFs charted modest net inflows of 0.4 tons during the month. This bucked a global trend that saw a significant reduction in ETF gold holdings. According to the World Gold Council, the primary drivers of gold inflow into Indian ETFs were a macroeconomic backdrop of higher inflation and a depreciating rupee. It was the third consecutive month of net inflows of gold into Indian ETFs.

Gold imports charted a strong increase in May with 98 tons of gold flowing into the country. This compares with 27.1 tons in April and 11.4 tons in May 2021. It was the highest import tonnage since August 2021.

The Reserve Bank of India added 3.7 tons to its gold reserves in May. It was the highest monthly addition since December 2021. Since resuming buying in late 2017, the Reserve Bank of India has purchased over 200 tons of gold. In August 2020, there were reports that the RBI was considering significantly raising its gold reserves again.

India ranks as the second-largest gold-consuming country in the world, second only behind China, but the gold market has languished over the last couple of years. The pandemic crushed demand, particularly for gold jewelry. But even before coronavirus, record-high gold prices in rupee terms and government policy put a drag on the gold market. There were signs of a turnaround late last year and it continued through the first quarter of 2021. The second COVID-19 wave stalled the gold market’s recovery in India early in Q2, but it regained steam later in the year with strong retail demand and a surge in gold imports.

Indians traditionally buy and hold gold. Collectively, Indian households own an estimated 25,000 tons of gold and that number may be higher given the large black market in the country. The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Gold served as a lifeline for many Indians during the pandemic.

The Indian government’s response to the first wave of COVID-19 ravaged the economy. As a result, many banks were reluctant to extend credit due to fear of defaults. In this tight lending environment, many Indians used their stashes of gold to secure loans. As Indians battled the second wave of COVID-19, many Indians sold gold outright in order to make ends meet.

Indians understand that gold tends to store value and that ultimately gold is money. If they have gold, they know they will be able to get the goods and services they need – even in the event of an economic meltdown. And while westerners may not embrace the cultural and religious aspects of the Indian love affair with gold, the economic reasons for their devotion to the yellow metal are every bit as applicable in places like the US.