What drives gold demand in India? Here's the World Gold Council's answer

Last Updated: Tue, Jan 24, 2017 17:03 hrs
Gold (AP photo)

The World Gold Council has come out with a report India's gold market: evolution and innovation and in it sought to pin down the factors driving gold demand in India.

The research for the report done by TNS discovered that weddings (24%), birthdays (15%) and religious festivals (12%) were the three biggest drivers of gold demand in India.

A key finding based on a study of annual gold consumption trends in India over a 25-year-period - 1990-2015 - was that there are primarily two major factors that impact gold prices: a rise in income drives up gold rates while a rise in prices drives down demand.

Significantly the rise in income has a greater impact than the rise in gold rates, even when the rise in gold rates is greater than the rise in income!

Is this down to a general rise in buying confidence in a fast-growing economy? The study does suggest so.

"For a 1% increase in income per capita gold demand, rises by 1%," the report states, while "for a 1% increase in prices, gold demand falls (only) by 0.5%".

"This is intuitive. One would expect gold demand to rise with income and fall with price. But it also highlights the respective strength of these two forces. Demand responds more to income than it does to price. This helps explain why gold demand increased from around 700 tonnes in 2000 to around 1000 tonnes in 2010, despite a dramatic increase in the gold price over the period. The impact of the 137% increase in the rupee gold price was outweighed by the 78% increase in per capita income!" the experts behind the report say.

The World Gold Council infographic from the report is below:

Gold rate in india

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