What drives gold demand in India: consumption or investment?

Manoranjan Sahoo, Ipsita Rakshit and Kirtiranjan Das

Journal of Financial Economic Policy, 2025, vol. 18, issue 2, 217-242

Abstract: PurposeIndia’s hefty gold imports, comprising 9.27% of total merchandise imports and 35.75% of trade deficit in 2020, strains the current account, necessitating swift import control. This study aims to explore the factors driving India’s gold demand in both the short and long run, whether for consumption or investment purposes.Design/methodology/approachThis study uses a variety of scientific techniques, such as descriptive statistics, unit root analysis (with and without structural break tests), Brock, Dechert, and Scheinkman (BDS) test and non-linear autoregressive distributed lag cointegration technique.FindingsThis study reveals that long-term demand for gold imports remains resilient regardless of price fluctuations. In contrast, short-term demand is primarily influenced by price reductions, with increases in gold prices having insignificant impact. This study posits that the inverse relationship between falling gold prices and imports stems from consumption-driven demand, whereas the direct correlation between rising prices and imports is fuelled by investment motives in the long run.Research limitations/implicationsPolicymakers may find nonprice measures more effective and efficient in managing gold imports and addressing long-term trade imbalances.Originality/valueThis paper, therefore, aspires to empirically examine the impacts of gold price on gold imports demand in India by analysing annual data from 1975 to 2020.

Keywords: Gold import demand; Gold price; NARDL bounds test; India (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-06-2024-0144

DOI: 10.1108/JFEP-06-2024-0144

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