Tough to dampen gold demand with curbs on supply: WGC

The Word Gold Council (WGC) has witnessed a jump in the demand for gold due to softening of prices in April. The council believes that China and India will continue to drive gold demand higher as it remains an important investment avenue for people in Asia.

Commenting on curbs imposed on gold supply by the government to rein-in the current account deficit, PR Somasundaram MD - India, World Gold Council, in an interview to CNBC-TV18, said that the curbs would be counterproductive in the long run as demand would lead to unauthorised channels of supply such as smuggling.

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"People will only look at these drops in prices as opportunities to buy more gold and add it to their portfolio," he added.

Somasundaram mentioned that there will be no slowdown in the demand for gold thanks to  the increase in the number of auspicious days. “Demand in India and China is quite robust on strong fundamentals of gold as an asset and investment.”

The WGC, in an appeal to the government to repeal its curbs on gold, highlight the fact that only three percent of the gold stock is used as collateral for loans. “We understand the rationale behind the measures and the immediacy of the issue of current account deficit (CAD). But we have always maintained in all our discussions that trying to dampen this demand, which is driven a by diversified retail behaviour, by hampering supply will not be very effective,” he said.

Somasundaram also emphasised that the risk of curbs turning counterproductive due to increased smuggling was ever present. "It is widely understood at various levels of policy-making that it is difficult to curb demand through management of the supply side because gold is an asset that every householder wants to own."