Note ban may affect gold demand in short-term: World Gold Council

New Delhi : India’s demonetisation decision is likely to affect gold demand in the short-term, a World Gold Council (WGC) outlook report released on Friday stated. “In India, the government’s decision to remove large-denomination rupee notes took around 86 per cent of India’s circulating cash out of its economy,” according to the Outlook 2017 - Global Economic Trends and their impact on gold, released by WGC.

“While the purpose is to replace them with newly printed notes, we believe that the liquidity squeeze could have a temporary negative effect on economic growth, and may also affect gold demand in the short term. But more importantly, we believe that the transition to transparency and formalisation of the economy will lead to stronger Indian growth in the longer term, thus benefiting gold,” the report added.

The WGC said there were six major trends to be watched out for in 2017 from the economic perspective that would impact the gold market. The trends are: Heightened political and geopolitical risks; currency depreciation; rising inflation expectations; inflated stock market valuations; long-term Asian growth and opening of new markets. The report said gold was becoming more mainstream.

Gold-backed exchange traded funds made gold accessible to millions of investors, primarily in the West, over the past decade, but other markets continue to expand too. It said, “China has seen dramatic growth in recent years through gold accumulation plans, physically settled gold contracts in the Shanghai Gold Exchange. In Japan, pension funds have increased their gold holdings over the past few years.”