India indulged in gold imports worth a record $55.7 billion in 2021, more than double 2020’s tonnage. Experts say a price drop favored retail buyers as demand had been hit by the COVID-19 pandemic.
A senior government official told Reuters that the 2021 gold import bill easily doubled the $22 billion spent in 2020. It surpassed the previous high, which was set in 2011, of $53.9 billion. In terms of volume, India imported 1,050 tonnes of gold in 2021, the most in a decade and far more than 430 tonnes imported in 2020.
Analysts say while global bullion prices support from the strong demand in India, the outlay on imports would have added pressure on India’s ailing rupee. Harshad Ajmera, a gold wholesaler in Kolkata, highlighted that last year’s demand was robust as lots of weddings were postponed to 2021 from 2020 because of the COVID-19 outbreak.
The businessman said Indian authorities had imposed strict lockdowns during the first wave of the pandemic in 2020. It hit gold demand during the wedding season and key festivals when purchasing gold is regarded as auspicious. Ajmera explained that gold is seen as an essential part of the bride’s dowry in India, and is also a popular wedding gift. He pointed out that the price correction had made gold more affordable for retail consumers in India in early 2021.
Meanwhile, the market expects a much better performance from gold in 2022. There is a potential for a 60% growth from current levels. The benchmark 10-year US yield, as per Trading Economics, jumped above 1.6% on Monday as markets stepped up bets that the Federal Reserve will raise interest rates in March, soon after it completes tapering its asset buying.
Gold was also pressured after the dollar, which benefited from higher US yields, rebounded back above 96 on Monday. Higher yields raise the opportunity cost of holding non-interest paying bullion and a stronger dollar makes it more expensive for buyers holding other currencies.