The demand for gold is likely to remain subdued this year following Covid-related disruptions that continues in India, the World Gold Council (WGC) said in a report.
However, in 2022, the impact of pent-up demand for the precious metal is likely to herald a period of robust demand, the report suggested.
Demand for gold may be more subdued than expected this year, following India’s prolonged battle with Covid-19, according the report – The Drivers of Indian Gold Demand.
However, the report stated that imports remain strong and retail demand is expected to pick up, as restrictions are being gradually lifted across the country.
According to the report, the rising income is the most powerful driver of Indian gold demand in the long-term, which bodes well for Indian gold demand as the economy is complemented by a strong demographic dividend.
However, Indian demand faces short-term challenges from declining household savings rate and agricultural wages, the WGC report noted.
Households are saving proportionately less than they used to, which may reduce the amount of capital they allocate to gold, said the report.
Financial inclusion is increasing, which provides investors with other sources for their savings beyond physical gold, government policies that can impact demand and inadvertently foster India’s unofficial market and decline in agricultural wages despite government actions in recent years, are few other short term challenges, the report said.
“The gold price, monsoon, changes in taxes and inflation are the short term drivers for gold while, household income and government levies will drive the demand for long term. We are confident that these findings will shape industry strategy around reinforcing established conventions and developing new ways to attract and sustain demand in the future, WGC Regional CEO, India Somasundaram PR added.
For 2021, jewelers are gearing up for good sales in the October-December festival quarter. For each 1% increase in gross national income per capita, gold demand rises by 0.9%, according to the report. For each 1% fall in the gold price in a year, demand increases by 1.2%. And for each one percentage point increase in inflation, gold demand increases by 2.6%, as per the report.