Investment and jewelry demand within India is often decidedly blurry.

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This is one of the many reasons why the Indian government’s quest to rein in gold imports is rather quixotic and, it begs the question, how sustainable is the current regulatory framework?

In its daily precious metals note, UBS asks exactly that, commenting that, while the situation is fluid, “There is a clear recognition of the reality that a decent portion of demand – particularly in the form of jewelry and ornaments linked to festivals and wedding traditions – will remain intact.”

This is supported by Standard Bank, that writes in its latest Commodities strategy note, that, although premiums in China fell somewhat in recent sessions, “looking at gold physical demand more broadly in Asia, our Standard Bank Gold Physical Flow Index indicates that demand remains relatively healthy, actually been rising in the past week. “This, the bank says, is a positive sign, “indicating a higher gold price in the next few days,” adding, “Part of such a rise in gold demand would be seasonal factors.”

According to UBS, while jewellery demand remains robust, it says, the investment element of gold demand in India, which is, admittedly, rather smaller than jewelry is likely to be affected. And, while it accepts that because of the potential for blurring mentioned earlier, accurate levels of investment demand are difficult to ascertain, it says: “feedback from the ground is that the former [investment] has come off this year”.

Global gold sentiment combined with restricted supplies and is visible in the lower flows seen into Indian ETFs as well as the appetite for investment products like coins (small bars).

Bar and coin investment maintained its momentum, jumping 31% to an eight-year high of 1,180t. Q4 2021 demand of 318t, meanwhile, was the highest for a fourth quarter since 2016.

Gold Demand Trends Full Year 2021

The difficulty in accessing the yellow metal, especially in the second half of this year, has likely driven some of the investment demand towards silver. Reports have pointed to a strong surge in the country’s silver imports, which ties in with the pick-up in silver flows noted by counterparties with whom we’ve spoken.

Global silver demand is expected to reach a new high of 1.21 billion ounces in 2022, up by 16% from 2021. Each key segment of demand, except photography, is set to post a new peak.

For UBS, the upcoming elections in India will be an important signpost for the local gold market.

“The outcome could impact gold regulations through its effect on expectations for the economy and the direction of the currency. The general view for now is that some changes could occur; most expect these changes to be broadly within the current framework, although a more significant shift could not really be ruled out either.”

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