Can you tell us a bit about your background and your specific expertise at Metals Focus?
I’ve held various roles in the precious metals industry over the past 17 years and I’ve been fortunate enough to work with some of the largest companies both in India and globally. I’ve worked with Metals Focus specifically for nine years, now as the head of the India office, looking at the South Asia and East Asian markets.
Metals Focus is one of the world’s leading precious metals research and consultancy companies. Our greatest strength is our intensive travel programme, where we visit key precious metals markets and look at supply and demand. This helps us properly analyze the market and do a bottom-up analysis all the way up to pricing.
Let’s start by looking at supply and demand outlook and analysis. Where are you seeing physical surpluses or deficits across the international metals markets and how is this impacting pricing?
If you look at the gold market here, the supply essentially comes from two areas: mine production and recycling.
For 2023, we’re looking at about 3% growth per annum in terms of mine supply, with the big growth areas likely to be the Americas and Oceania. Recycling is a price driven activity. If gold prices are softer, then recycling goes down, which we expect to see over the course of this year.
For 2023, we’re looking at about 3% growth per annum in terms of mine supply, with the big growth areas likely to be the Americas and Oceania
Demand on the other hand revolves around jewellery, investment, and central bank buying. If you look at demand for jewellery alone this year, we expect to see growth from China, India, and some parts of East Asia. As gold prices dip, a lot of countries feel it’s a good opportunity to buy gold, so we expect a marginal increase in investment demand.
The growth in investment demand could be lower than the growth in jewellery demand. Central bank demand is interesting because last year we had multiple large purchases. Last year, Metals Focus estimated central banks would purchase around 1100t. We are forecasting Central Bank will buy US$700 (or 750t) this year.
With higher jewellery demand, marginal investment demand, and central bank buying down, overall demand is just marginally five to 6% lower. Essentially because of the dip in central bank buying, which was very strong last year.
We are not too positive on gold prices going forward because of the macroeconomic situation. We think that it will be difficult to gain institutional support, especially as Metals Focus expects prices to trade below US$1,600 this year.
Let’s look at the COVID-19 pandemic and the impacts that you saw on the precious metals markets across India and South Asia. Are there lasting impacts that you’re noticing or any rebound at this point?
Something I always say is that the pandemic has reinforced people’s faith in gold. We can look at Thailand as an example. In April 2022, images went viral across the world of serpentine queues outside gold shops. People were selling their gold in the face of economic uncertainties; gold was the only holding they had. In other countries, we also saw people selling their gold holdings because they didn’t have jobs or full incomes.
In India, people typically don’t sell their gold because we’ve got such a vibrant gold loan market. Banks and non-banking financial corporations have a large gold loan portfolio, meaning that people can just go to the bank, pledge their gold, and get money back. So that saw a huge jump. What’s interesting is that India was probably the first country to see a big rebound.
In late 2020, the Indian government pushed the vaccines aggressively, cases reduced, and by early 2021 we had very few cases relative to the total population. So, we opened everything up and we consequently were hit with record demand later that year. By comparison, China went ahead with the zero-Covid policy, and so the impact there has been very different.
In other parts of Asia, such as Thailand and Indonesia, they have seen gradual recovery as tourism picks up. Each country and their governments’ have reacted differently to the economic conditions that came with the pandemic. However, a bounce back is eminently expected in most countries.
Looking at the physical markets in India versus China, what’s the difference in impact that the various markets might have on the markets overall?
India has seen a consistent bounce back post-2021, and this growth has continued through 2022. There have also been interesting changes in the Indian market post-COVID, with the younger generation realizing the importance of physical gold as an investment.
Two years ago, the average ticket size in India was eight to 12g. Now, we are seeing the average ticket size sit around 12 to 15g. This is due to several factors. A lot of younger people have started buying gold. There are also a lot of behavioral changes happening in the gold market. There is a growing preference for jewellery, and a lot of gold is also purchased for weddings, pushing Indian gold higher. Due to the recent opening, Chinese recovery is on the horizon.
While purchases have been low over the past two years, they are now on the come up. If you look at other areas in the region (East Asia, Thailand, Indonesia, etc.) we see benefits from economic growth or tourism returning. Whereas if you look at Sri Lanka and Nepal, I see a sharp reduction in gold buying because of the their economic crisis.
Let’s look at the impact of the Indian and South Asian physical markets, the impact of those on the global outlook for the precious metals, for gold as well as the others.
If you look at gold and silver, India is among the top buyers. Last year, India was the largest gold consumer, because of the drop in demand from China and its zero-Covid policy. India was also the largest consumer of silver last year with about 9,000t of imports, a record high. We can see that India is a very prominent consumer of gold and silver. However, that doesn’t mean that this drives price internationally because India is a one-way market, where gold and silver only come in. There’s no global trading that happens. This is why the price drivers are actually places like London and New York, where they have more of a two-way gold trade.
