The World Gold Council (WGC) said in a statement that India's gold demand is likely to face short-term challenges due to declining household savings rate and agricultural wages.

The growing income is one of the most significant drivers of Indian gold demand in the long term as the country's economy is complemented by a strong demographic dividend, the Council said in a report. "Our latest research reinforces the fact that the drivers of gold demand in India are many and varied," Somasundaram P.R., managing director, India, at WGC, said. "Cultural affinity, long-held tradition and festive gifting clearly play a significant role," he said. The council's estimates showed that for every 1 percent increase in per capita national income, India's gold demand rises by 0.9 percent. However, for each 1 percent increase in gold prices valued in rupee, consumption declines by 0.4 percent. "Import duties and other taxes affect long-term demand, but the magnitude varies depending on whether gold is bought as jewellery or bars and coins," according to the report.

For short-term consumption factors, inflation and gold prices affect demand drastically. For every percentage point increase in India's inflation, gold demand rises by 2.6 percent, the council said. Likewise, for a 1 percent fall in gold prices in any given year, demand rises by 1.2 percent. Besides, excess rainfall and an increase in the rate of import duties also affect demand for gold in the country, the World Gold Council said.

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