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The demand for gold in India may remain subdued this year following Covid-related disruptions, the World Gold Council (WGC) said in a report. But in 2022, the impact of pent-up demand is likely to see a period of robust demand, the report suggested.
The report, however, said imports remain strong and retail demand is expected to pick up, as restrictions are being gradually lifted across the country.
Looking ahead, it would appear that if the industry takes steps to become more transparent, more standardised and more in line with global peers, India’s gold market would most likely benefit from positive demographics and socioeconomic changes, the report added.
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.
“As our econometric model illustrates, rising incomes are one of the biggest single drivers of long-term gold demand. This suggests that, as India’s economy grows, demand for gold should increase,” it stated.
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.