A woman tries on a gold bracelet at a jewelery showroom in the eastern Indian city of Siliguri. Photo: Reuters/Rupak De Chowdhuri

Indians are among the world’s keenest gold buyers, but a combination of prices soaring and the economic impact of the pandemic lockdown has put their love of the glittering metal to the test.

Stock market investor Darshan Sheth is both concerned about and relieved to see gold prices hitting new highs. He is concerned as a potential investor because it is less affordable but relieved because his daughter got married just before Covid-19 swept across the world.

Luckily for Sheth, he had bought the required gold ornaments months before the wedding. Since he made his purchases last year, the price has surged more than 50%, hitting all-time highs globally above US$2,000.

As an investor in stocks, which surged 44% from a sharp dip in March, Sheth is unsure if he should set aside some money to buy the precious metal or just stay with stocks.

The majority of Indians found it difficult to buy the precious metal after the government imposed a countrywide lockdown for two months from March 25.

People in several states are still enduring lockdowns that limit their ability to make a living to various degrees, putting extravagances like gold well out of reach.

Unlike economies such as the United States, where investors move seamlessly between assets classes traded on exchanges, in India gold is bought by the common man in its physical form, often with no guarantee of purity. To address this, India plans to introduce the hallmarking of jewelry next year.

Jewelry usually remains in family vaults as a safe asset that can be transferred to children at the time of their wedding or any other important ceremony.

The purchase of gold has taken a back seat since the pandemic began, but that may change. A key test of demand will be the upcoming festival season beginning in October and ending with Diwali in November, which is then followed by the wedding season.

Unofficial estimates put India’s private gold holdings at 25,000 tons, probably the largest in the world, with temples and trusts holding about 4,000 tons. During times of dire necessity, gold is pledged as collateral to borrow money.

The central bank last week increased the amount that can be borrowed against gold collateral to 90% of its value, compared with 75% earlier. This policy is in effect until March 31, 2021.

Many weddings were canceled during the lockdown, and those that went ahead with their plans had to limit the number of guests, observe social distancing rules and generally keep the celebrations subdued.

Total demand for jewelry in India fell by as much as 74% to 44 tons in the three months to June 30, compared with 169 tons in the same period last year, according to the World Gold Council.

The drop in investment demand for gold was not as sharp, falling to 19.8 tons from 44.5 tons during the April-June quarter over the same quarter a year ago.

Total demand for gold during the quarter this year was down by 70% to 64 tons compared with 213 tons same period last year. In value terms, demand fell to 266 billion rupees compared with 624 billion rupees.

Titan Company Ltd, which sells gold and diamond-studded jewelry under its Tanishq brand, reported a 56% drop in income from jewelry sales to 17.8 billion sales compared with 40.5 billion rupees during the April-June quarter.

For the half year to June 30, investment demand for gold fell 39% compared with demand for jewelry, which plunged 60% in terms of volume.

Following the lockdown, imports plunged 95% to 11.6 tons during the April-June quarter, compared with 247 tons in 2019. In 2019, India imported 831 tons of gold, compared with more than 1,000 tons by China.

Because Indian mines produce only a negligible amount of gold, the country is a major importer.

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