India’s Gold Demand Dips As Inflation Dampens Rural Demand: Report

Lower gold demands could also affect the gold prices, which are trading near their lowest level in more than two-years, the report said

As festivals drove jewellery sales, India's demand for gold rose to 191.7 tonnes in the quarter through September, 14 per cent more than a year ago, the WGC said.

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As inflation depresses rural demand, India's gold consumption could fall by around a quarter from a year ago in the months of October to December, the World Gold Council (WGC) said on Tuesday, according to Reuturs. Lower gold demands could also affect the gold prices, which are trading near their lowest level in more than two-years, the report said. Decline in gold imports could help India narrow its trade deficit and support the rupee, the report added.

Higher inflation is likely to curb rural demand, which was starting to recover from disruption caused by last year's Covid-19-led lockdowns, Somasundaram PR, regional chief executive officer of WGC's Indian operations said accoridng to Reuters report.

He said the recovery in gold jewellery demand was primarily driven by urban India, more specifically Southern parts, underpinned by robust economic activities with a 17 per cent year-on-year (YoY) increase.

In September, India's annual inflation rate was above 7 per cent, which is beyond the RBI's tolerance limit. This has raised the concerns that the central bank will raise rates at the next policy meeting, the report said.

In the December quarter, India's gold demand could fall to around 250 tonnes from 343.9 tonnes a year ago. The drop could bring down India's total gold consumption in 2022 to around 750 tonnes, down 6 per cent from last year's 797.3 tonnes, Somasundaram said.

Two-thirds of India's gold demand usually comes from rural areas, the Reuters report said.

As festivals drove jewellery sales, India's demand for gold rose to 191.7 tonnes in the quarter through September, 14 per cent more than a year ago, the WGC said.

Gold smuggling has gained momentum since New Delhi in July raised import duty on the precious metal. Smuggling declined in the last two years because of a lack of international flights. "With the total tax of 18.5 per cent, there is a lot more propensity to smuggle," Somasundaram told Rueters.