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Thanks to higher MSP, gold demand to surge 25%: Report

Two-thirds of India’s gold demand comes from rural areas. Demand for gold is likely to surge in the second half of the year thanks to a good outlook for farmers


With two-third of India’s gold purchases coming from the rural areas, the annualised demand for the yellow metal is expected to “surge” by 25 percent in the second half of the current financial year even as higher minimum support price (MSP) for some of the main crops would be a key growth drivers for the gold, according to a joint study by ASSOCHAM and World Gold Council (WGC).
 
“Two-thirds of India’s gold demand comes from rural areas. Demand for gold is likely to surge in the second half of the year thanks to a good outlook for farmers. Indian gold consumption was tepid in the first half of this year. Higher MSP should boost the gold trade, as it would  put more cash in the hands of farmers and that bodes well for gold demand. Analysts expect a 25 percent increase in gold demand compared to the second half of last year,” the latest ASSOCHAM–WGC Report stated.
 
It said the precious metal is interwoven into India’s social, religious and cultural ceremonies. People value gold as a store of wealth, especially in rural regions. India ranks second in the world in gold consumption and about 60 percent of the demand comes from rural areas. Higher rural incomes lead to higher gold purchases.
 
“Gold is not just a luxury in India and even the poor people buy gold in our country,” the report said. Quoting an ICE 360 survey last year, one in every two households in India purchased gold within the last five years. Overall, 87 percent of households in the country own some amount of the yellow metal. Even households at the lowest income levels own some gold. More than 75 percent of families in the bottom 10 percent had managed to buy gold, as Indians consume between 800 and 900 tonnes of gold annually. Only the Chinese buy more gold than Indians. Consequently, the Indian consumers do impact the global prices in the international markets.
 
However, the rich Indians spend much more on gold compared to the poor. The average household spending on gold purchases was Rs 30,298 for the top decile (top 10 percent) in the last year, roughly eight times the average spending of the bottom decile (bottom 10 percent). A significant share of households across income classes purchased gold during weddings. But a much higher proportion purchased gold for other “social purposes” such as for gifts, personal use, to enhance social status, or to offer for worship or during festivals such as ‘Dhanteras’ .
 
For the poor and low income middle classes, gold also serves as an economic security. The poorer income classes take gold loans, mostly for medical emergencies or financial crises. This suggests that in the absence of adequate insurance or financial savings, gold holdings work as insurance for the poor.

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