The demand for gold is likely to remain subdued this year following Covid-related disruptions that continues in India, the World Gold Council (WGC) said in a report.
However, in 2022, the impact of pent-up demand for the precious metal is likely to herald a period of robust demand, the report suggested.
Demand for gold may be more subdued than expected this year, following India's prolonged battle with Covid-19, according the report - The Drivers of Indian Gold Demand.
However, the report stated that imports remain strong and retail demand is expected to pick up, as restrictions are being gradually lifted across the country.
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, it stated.
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, the report added.
According to the report, the 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.
"As our econometric model illustrates, rising incomes are one of the biggest single drivers of long-term gold demand. This suggests that, as India's economy grows, demand for gold should increase," it stated.
However, Indian demand faces short-term challenges from declining household savings rate and agricultural wages, the WGC report noted.
Households are saving proportionately less than they used to, which may reduce the amount of capital they allocate to gold, said the report.
Financial inclusion is increasing, which provides investors with other sources for their savings beyond physical gold, government policies that can impact demand and inadvertently foster India's unofficial market and decline in agricultural wages despite government actions in recent years, are few other short term challenges, the report said.
"The gold price, monsoon, changes in taxes and inflation are the short term drivers for gold while, household income and government levies will drive the demand for long term. We 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, WGC Regional CEO, India Somasundaram PR added.
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