Gold consumption highest among Indian middle-income group

Consumption of gold in Indian households is the highest among the middle income group – those with annual income between Rs 2 lakh and Rs 10 lakh – consuming an average of 56 per cent of the total volume of the yellow metal sold in the country in the last five years, said nationwide household gold consumption survey by India Gold Policy Centre (IGPC) at the Indian Institute of Management, Ahmedabad (IIM-A).

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“Per capita consumption is highest among the rich, but total volume still rests with the middle-income group. With increasing income, there is an increasing propensity to consume gold, although the share of gold in the portfolio does not increase with the same proportion of income. Interest for digital gold products (paper gold) increases among the top income class. Urban household’s share of total consumption in value terms is near 70 per cent, signs of increasing demand with urbanisation,” the survey findings suggested. SEE TABLE BELOW

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Gold, according to the IGPC’s survey findings, was a ‘must hold’ among Indians with over 75 per cent of the households agreeing to be owning the yellow metal in some form or another. Weddings were the primary reason for buying gold, with 43 per cent of the Indian households surveyed buying the yellow metal for this purpose, followed by 31 per cent who bought it for ‘no specific purpose.’

The consumption, IGPC said, was not affected by demonetisation or goods and service tax (GST) implementation. In the last five years, at least 74 per cent of the households confirmed buying gold with 90 per cent of such households preferring to make the payment in cash while buying the yellow metal, IGPC said.

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“A novel virus showcased the fragility of the global political and financial systems. The havoc caused by the outbreak led to a sharp increase in the stock market volatility, which triggered a ripple effect, reducing market liquidity. Gold once again surfaced as a safe haven due to the diversification benefits it gives to equity portfolios,” said Professor Arvind Sahay, chairperson, IGPC.

This insatiable appetite for the yellow metal saw India’s gold imports surge 33.34 per cent to $46.14 billion during fiscal 2021-22 (FY22), data show. India is the world’s second-biggest gold consumer after China. The imports were largely driven by the jewellery industry. The gems and jewellery exports during FY22 grew around 50 per cent to nearly $39 billion.

Gold consumption in India

Meanwhile, gold prices, according to the World Gold Council (WGC), rose for the second consecutive quarter in the January – March 2022 period, ending 8 per cent higher at $1,942 an ounce – its best quarterly performance since the April – June 2020 period. Rapidly rising inflation, higher interest rates and the unexpected geopolitical risk were the key drivers of gold prices in the recently concluded quarter, WGC said.

“A prolonged conflict in Ukraine will likely result in sustained investment demand. In contrast, a swift resolution, something which we all hope for, may see some tactical positions in gold unwind, but significant strategic positions will remain. However, the opposing forces of inflation and rising rates will likely be the strongest influences on gold in the April – June 2022 quarter. The post-COVID economic recovery and supply-side disruptions, which have been exacerbated by the Russia–Ukraine war, will likely keep inflation higher for longer,” WGC said.

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In this backdrop, analysts expect gold prices to remain firm for most part of 2022, albeit amid intermittent corrections. Those at HSBC Global Research, for instance, have raised their 2022 average gold price forecast to $1,820 an ounce from $1,780 an ounce and to $1,750 an ounce from $1,715 an ounce for 2023.
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