Gold demand in India reduced due to inflation hit rural buyers

 

• Falling demand for gold imports can also help narrow India's trade deficit and support the rupee

The World Gold Council (WGC) on Tuesday said India's gold consumption in the months of October to December could fall by nearly a quarter from a year ago, as inflation dampens rural demand.

Lower buying could impact prices in the world's second-largest consumer of gold, which is trading near its lowest level in more than two years.

Falling demand for gold imports could also help narrow India's trade deficit and support the rupee.

Higher inflation is likely to curb rural demand, which had begun recovering from the disruption caused by last year's COVID-19-led lockdown, Somasundaram PR, regional chief executive of WGC's India operations, told Reuters.

India's annual inflation rate in September remained above 7% and beyond the central bank's tolerance band, raising the possibility that the central bank will raise rates in the next policy meeting.

Two-thirds of India's gold demand usually comes from rural areas, where jewelery is the traditional store of wealth.

Somasundaram said India's gold demand is likely to fall to around 250 tonnes in the December quarter from 343.9 tonnes a year ago.

He said the fall could bring India's total gold consumption to around 750 tonnes in 2022, down 6% from last year's 797.3 tonnes.

In a report published on Tuesday, the WGC said gold demand in India increased by 14 per cent to 191.7 tonnes from a year ago, due to increased sales of jewelery due to festivals.

Gold smuggling has declined over the past two years due to a lack of international flights, accelerating since New Delhi raised import duties on the precious metal in July.

“With a total tax of 18.5%, the trend of smuggling is very high,” Somasundaram said.

This story has been published without modification in text from a wire agency feed. Only the title has been changed.