Higher MSPs may push gold demand up by 25% in second half of 2018

India's gold demand is likely to surge 25 per cent in the second half of this year on improved purchasing power of farmers owing to higher minimum support price (MSP) for crops announced by the government, says a report.

India, the world's second biggest buyer of the precious metal, consumes 800-900 tonne of gold annually. Two-thirds of the country's gold demand comes from rural areas.

"Indian gold consumption was tepid in the first half of this year. ...Demand for gold is likely to surge in the second half of the year thanks to a good outlook for farmers," says the latest Assocham-World Gold Council report.

Analysts expect 25 per cent rise in gold demand in the second half of this year as compared to the year-ago period. Higher MSP should boost the gold trade, as it would put more cash in the hands of farmers and that bodes well for gold demand, it said.

Gold is not just a luxury in India and even the poor people buy gold in the country, the report added.

Quoting an ICE 360 survey done last year, the report said one in every two households in India purchased gold within the last five years.

Overall, 87 per cent of households in the country own some amount of the yellow metal. Even households at the lowest income levels own some gold. More than 75 per cent of families in the bottom 10 per cent had managed to buy gold.

However, the rich Indians spend much more on gold compared to the poor. The average household spending on gold purchases was Rs 30,298 for the top decile (top 10 per cent) in the last year, roughly eight times the average spending of the bottom decile (bottom 10 per cent).

A significant share of households across income classes purchased gold during weddings. But a much higher proportion purchased gold for other social purposes such as for gifts, personal use, to enhance social status, or to offer for worship or during festivals such as Dhanteras', it said.

For the poor and low income middle class, gold also serves as an economic security. The poorer income classes take gold loans, mostly for medical emergencies or financial crises. This suggests that in the absence of adequate insurance or financial savings, gold holdings work as insurance for the poor, the report added.