Inflation, price rise could dent India’s gold demand in July-December: World Gold Council

India’s gold demand in the first half of 2022 jumped 42% from a year ago but consumption in the second half could be lower than last year as higher inflation erodes disposable income, the World Gold Council (WGC) said on July 28.

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Lower purchases by the world’s second-biggest gold consumer could weigh on prices, which are trading near their lowest level in more than a year. But falling demand for gold imports could help narrow India’s trade deficit and support an ailing Rupee.

“Inflation is making it difficult for people, especially in rural areas, to save more and allocate to gold,” Somasundaram P. R., regional chief executive officer of WGC’s Indian operations, told Reuters.

Somasundaram, regional chief executive officer of World Gold Council’s Indian operations.

The country’s annual inflation rate in June remained painfully above the 7% mark and beyond the Central bank’s (Reserve Bank of India) tolerance band for the sixth month in a row, raising the prospects for more rate hikes by the Central bank next month.

“In the short-term, the rise in local gold prices because of a depreciating Rupee and increase in import duty on the bullion will also hurt demand,” he said.

India’s demand for gold jumped 43% from a year ago to 170.7 tonnes in the quarter through June as jewellery sales improved because of weddings and the annual Hindu and Jain holy festival of Akshaya Tritiya, when buying gold is considered auspicious, the WGC said in a report published on Thursday. In the first half of 2022, gold consumption rose 43% to 306.2 tonnes.

The WGC earlier estimated India’s gold consumption in 2022 at 800-850 tonnes, but the likely slowdown in demand in the second half prompted it to scale down that estimate to the lower end of that range at around 800 tonnes.

“Higher prices prompting some Indian consumers to liquidate their holdings, which could lift scrap supplies in 2022 above 100 tonnes from 75.2 tonnes a year ago,” Somasundaram said.