The drivers of gold demand in India are many and varied. Cultural affinity, long-held tradition and festive gifting clearly play a significant role. But these qualitative factors are complemented by quantitative factors, which offer additional and important insights. In this report, the first in a series of in-depth articles on the Indian gold market, we assess gold demand from a range of perspectives, both quantitative and qualitative.
First, we consider the findings of a comprehensive econometric analysis of the long- and short-run determinants of Indian gold demand. Second, we analyse demographic, socio-economic and related developments that are likely to shape demand both today and in the future. We also delve into aspects of Indian demographics and economic development that may help us to understand gold demand today as well as look to the future, said in the latest World Gold Council (WGC) report.
Under the Quantitative drivers of gold demand; the WGC said, using an econometric model, we have drawn on three decades of annual data, dating from 1990 to 2020, to gauge some of the principal influences driving gold demand in India.
Long-term drivers; our research reveals that, all else being equal, three key factors influence consumer demand for gold over the long term, 1: Income: for each 1% increase in gross national income per capita, gold demand rises by 0.9%. 2: Gold price level: for each 1% increase in the rupee-based price of gold, demand falls 0.4%. 3: Government levies: import duties and other taxes affect long-term demand but the magnitude varies depending on whether gold is bought as jewellery or bars and coins. While the influence of income and price on demand may be widely expected, their comparative weight is perhaps more surprising. Simply put, demand responds more to income than it does to price. This was clearly demonstrated between 2000 and 2010, when demand increased by more than 40%, from around 700 tonnes (t) to 1,000t per annum, even as the rupee gold price soared by 137%. At the same time, per capita income rose 77%, more than offsetting rising prices.