Gold demand is likely to be more subdued than expected in 2021, following India’s prolonged battle with Covid-19, said the World Gold Council (WGC). There is a possibility of a rebound in gold demand next year, it said, although any future outbreaks could create further uncertainties.
In the long-term too, gold faces challenges as households are saving proportionately less than they used to, which may reduce the amount of capital they allocate to gold, said a WGC report on ‘The drivers of Indian gold demand’. Simultaneously, it said, financial inclusion is increasing, which provides investors with other sources for their savings beyond physical gold which too may impact the appetite for gold in the country.
The report said that government policies can impact gold demand and inadvertently foster India’s unofficial market, indicating that any increase in import duty on gold in the coming days may open doors for smuggled gold. At present, gold attracts an import duty of 12.5%.
Rural India, which accounts for 60% of the country’s gold consumption, may spend lower than usual on gold as agricultural wages are still in decline, despite government actions in recent years, said the WGC.
But there are positive factors too, which may drive gold demand in the long term, said the report. The rapid growth in the working age population over the next two decades will create a strong and sustained demographic pidend. Secondly, continued urbanisation will drive and support economic expansion. And thirdly, higher penetration of both the manufacturing and services sectors in rural areas will reduce the reliance on agriculture and deliver more stable incomes for millions of households.