The World Gold Council today launched a report titled ‘The drivers of Indian gold demand’, the first in a series of in-depth analysis on the Indian gold market. Using an econometric model, it draws on three decades of annual data, dating from 1990 to 2020, to gauge some of the principal influences driving gold demand in India.

The report assesses gold demand from a range of perspectives, both quantitative and qualitative. It considers the findings of a comprehensive analysis of the long- and short-run determinants of Indian gold demand and examines demographic, socio-economic, and related developments that are likely to shape gold demand in the country, now and in the future.

The econometric analysis shows that 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. It is also impacted by policy measures support which is currently lacking as policy makers view gold demand solely through the prism of imports. Additionally, the report highlights that the industry efforts towards improving trust, transparency and consumer awareness need to be more cohesive.

The econometric analysis shows that 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. It is also impacted by policy measures support which is currently lacking as policy makers view gold demand solely through the prism of imports. Additionally, the report highlights that the industry efforts towards improving trust, transparency and consumer awareness need to be more cohesive.

Somasundaram PR, Regional CEO, India, World Gold Council, commented; “Our latest research reinforces the fact that the drivers of gold demand in India are many and varied. Cultural affinity, long-held tradition and festive gifting clearly play significant role. However, these qualitative factors are complemented by quantitative aspects, which have jointly shaped India’s demand for gold over the last three decades, such as household income, the gold price, and inflation, which is a key issue facing investors in India today. The report is based on a comprehensive econometric analysis that highlights the most potent drivers of Indian gold demand in the short and long term. It further delves into aspects of Indian demographics and economic development at a crucial juncture, helping us understand gold demand today as well as in the future. We, at the World Gold Council, 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”.

The report finds –

All else being equal, three key factors influence consumer demand for gold over the long – term.

Key econometric factors that influence short-term demand for gold are

Outlook for future gold demand in India

  1. Demand for gold may be more subdued than expected this year, following India’s prolonged battle with COVID-19
  2. However, imports remain strong and retail demand is expected to pick up, as restrictions are gradually lifted across the country
  3. In 2022, economic growth and the impact of pent-up demand for gold are likely to herald a period of robust demand, although any future outbreaks of coronavirus could create further uncertainties
  4. 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.

3 focus areas which would allow gold to retain its long-held position as a valued asset across India

  1. Trust: Mandatory hallmarking, good delivery standards for gold bars and a gold spot exchange will drive a sea change in the Indian gold market, building trust among consumers and investors alike
  2. Education and awareness: An orchestrated campaign explaining how to buy gold could inspire many potential gold investors, especially if this included products that accommodate small incremental investments. Explaining moves in the gold price, on television for example, might
  3. Innovation: Digital tools, such as online platforms, robo-advisors, mobile applications, and e-commerce platforms, will drive accessibility and put gold on a par with other investment assets

Regional preferences, population shifts and gold

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