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India's gold demand is set to rise upto 20% this year on potential increase in household savings following the government's focus on poverty alleviation.
Global miners' representative body the World Gold Council (WGC) forecast India's full year gold demand between 900-1000 tonnes in 2015, a significant rise from the actual demand of 842.7 tonnes in 2015. India's gold demand was reported at 974.5 tonnes in 2013.
"We estimate 21 million people will become net savers this year. Assuming that the average purchase by them would be one gram, another 210 tonnes of additional buying will come this year. Conservatively, we estimate India's gold demand to remain between 900-1000 tonnes this year," said Somasundaram PR, managing director (India), WGC.
After food and shelter, savings' first preference is gold. In 2014, therefore, an estimated 8% of savings are estimated to have been gone into gold. In the last 10 years, gold has offered 17% compounded annual growth rate (CAGR) returns.
Gold investment demand halved in 2014 to a mere 180 tonnes due to stoppage of selling coins and bars by banks and some jewellers.
Somasundaram said, the government should look into a long term policy to short out issues related to the current account deficit (CAD) and increase supply from local sources. Historical evidences show that gold savings schemes have not worked. Hence, recycling is the only option which the government must encourage in the form of promoting coins and bars especially for occasional and temple gifting purposes. Coins and bars are easily recyclable without fear of loss in weight, he said.
India's gold demand in coins and bars forms jumped by 22% in 2014 as against all time high of 38% in 2013.
"Import duty cut is unlikely to add to any fresh demand of gold in India. But, it will definitely change the form of supply from smuggling to official," Somasundaram added.
