Indian gold demand likely to surge: WGC

Gold prices, like other commodities, are driven to a large extent by the demand-supply equation.

Historical data shows that there is not much co-relation between the federal rates and gold.

Despite this, the popular perception is that a rise in Federal Reserve interest rates pulls down gold prices, as investors seek to invest in bonds and other market funds instead of gold.

Gold traders offered huge discounts to attract buyers who remained elusive, owing to expectations of cuts in import duties by the Finance Minister in the forthcoming budget 2016-17.

The reduction in import duties would pull down the prices and hence, buyers are waiting for the same.

Traders, on the other hand, wish to clear off their inventory to minimize losses.

Gold traders organised a nationwide strike to protest against the Central government rule, which required gold buyers to produce PAN cards for making purchases above Rs.2 lakhs.

The earlier limit was Rs.5 lakhs.

While the government wished to cut down on black money and reduce tax evasion, traders felt that those not possessing PAN cards would not be able to purchase gold now.

The World Gold Council has said that moving forward, Indian gold demand may rise owing to apprehensions of delays in interest rate hikes by the US Federal Reserve.

Gold is already trading at an 8.5 month high and the increasing demand from India, the second largest consumer in the world, will push prices further.

Indian gold prices have already risen by 15% in 2016.

According to the World Gold Council (WGC), India imported 858.9 tonnes of gold in 2015, 2% higher than the previous year.

This is at a time when the global consumption has remained stagnant.

Further, the rise is even more surprising because rural India, which accounts for two-third of India's gold demand had been facing consecutive monsoon deficient years.

According to the WGC, the Indian jewellery demand in 2015 was the highest since 2010 and third highest on record.

However, the outlook for 2016 was "cautious", as rising inflation and climatic crop damage is expected to reduce rural demand.

The expectation of delay in interest rate hikes by the US Federal Reserve and a bearish stock market may increase gold demand in 2016.