Gold demand could dip this quarter as inflation hits rural areas: WGC

By

Isabelle Crossley

Published
Nov 1, 2022

The World Gold Council expects India’s gold consumption to drop by around 25% year-on-year during the October to December period in 2022 as inflation continues and puts a dampener on rural consumer demand.

The fact that inflation is affecting rural demand is likely to significantly affect the gold jewellery industry in the coming months as gold is a traditional store of wealth in rural areas, the World Gold Council announced on November 1, ET Bureau reported. Rural demand was starting to recover from the challenges of Covid-19 and the large-scale lockdowns of last year but higher inflation rates could undo this progress, the World Gold Council’s regional CEO for India Somasundaram PR told Reuters. 
 
Many jewellery brands are hoping for a surge in sales ahead of the winter wedding season. However, as rural demand makes up around 66% of total gold demand in India, any muted demand in non-metro areas will affect total sales. 

In September, the annual inflation rate in India was above 7%. As this is beyond the tolerance band of the central bank, this increases the likelihood that the central Indian bank will raise its rates at its next policy meeting. 
 
Although muted demand may cause challenges for jewellery brands, a reduction in demand for gold imports could help to reduce India’s current trade deficit. This would in turn have a positive effect on the rupee.