The World Gold Council (WGC) said in a statement that India’s gold demand may face short-term challenges due to a fall in the domestic savings rate and agricultural wages.
The council said in a report that rising income is one of the most important drivers of Indian gold demand over the long term as the country’s economy is complemented by a strong demographic dividend. “Our latest research reinforces the fact that the drivers of gold demand in India are many and varied,” said Somasundaram PR, India’s managing director at WGC. “Cultural affinity, long-standing tradition and festive gifts clearly play an important role,” he said. The Council’s estimates show that for every 1 percent increase in per capita national income, India’s gold demand increases by 0.9 percent. However, for every 1 per cent increase in gold prices in rupee, consumption declined by 0.4 per cent. As per the report, “Import duties and other taxes affect long-term demand, but the magnitude depends on whether gold is bought in the form of jewelery or bars and coins.”
As for short-term consumption factors, inflation and gold prices influence demand significantly. The council said that for every percentage increase in India’s inflation, there is a 2.6 percent increase in the demand for gold. Similarly, for a 1 percent fall in gold prices in any given year, demand increases by 1.2 percent. Apart from this, additional rains and increase in the rate of import duty also affect the demand for gold in the country, the World Gold Council said.