(Bloomberg) -- Gold demand in India is likely to face challenges from a declining household savings rate and lower agricultural wages, according to the World Gold Council.
Rising income is one of the biggest drivers of gold demand, suggesting that as India's economy grows, sales of the precious metal should increase, the WGC said in a report. However, “households are saving proportionately less than they used to, which may reduce the amount of capital they allocate to gold,” it said.
Other key headwinds will emerge as more people get access to banks and financial products, which provides investors with other sources for their savings, lack of support from policy makers and a decline in agricultural wages despite government actions in recent years, it said.
While economic growth has slowed because of the coronavirus pandemic, the longer-term prospects remain bright, fueled by demographic changes, rising urbanization and shifts in the rural economy. For 2021, jewelers are gearing up for good sales in the October-December festival quarter.
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“Definitely, we will see good demand this year, but it will be a mixed bag,” P.R. Somasundaram, the regional chief executive officer for India at the council, said. “It will be skewed toward the bigger pieces and the more wealthier lot spending more on gold, whereas the real gold savers probably are staying out of the market.”
With the virus hitting small- and medium-enterprises and the unorganized labor force harder, demand from the country's less affluent sections has been severely dented, he said.
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