Indian Gold Demand Seen Rising in 2016

India's gold demand is likely to rise this year as investors have factored in interest rate hikes by the U.S. Federal Reserve, while the turmoil in stock markets is making the metal attractive, the World Gold Council (WGC) said on Thursday.

Stronger demand from the world's second-biggest gold consumer could support the global bullion price, which is trading near its highest in 8-1/2 months.

"Overall demand is seen promising since rate hike uncertainty is behind us," Somasundaram PR, managing director of the WGC's Indian operations, told Reuters.

The Federal Reserve raised U.S. rates for the first time in nearly a decade in December, and is expected to hike rates gradually going forward.

"There are strong tailwinds for demand in India. What is happening in the stock market is good for gold demand," Somasundaram said.

Indian gold prices have risen 15 per cent so far in 2016, while India's broader Nifty has dropped nearly 10 per cent.

In 2015, Indian demand rose 2 per cent from a year before to 848.9 tonnes, WGC data released on Thursday showed.

The increase comes even as total global gold consumption was little changed in 2015, the report showed.

WGC said Indian demand got a boost from an increase in jewellery sales despite adverse weather conditions and a squeeze on rural incomes.

The earnings of millions of farmers were curtailed by the first back-to-back drought in the country in nearly three decades. Rural demand for gold accounts for nearly two-thirds of India's total.

India's jewellery demand in 2015 was the highest since 2010 and the third highest year on record, but the outlook was cautious, WGC said.

"There are reasons to adopt a cautious outlook as we head into 2016: rural incomes continue to feel the squeeze from rising inflation and weather-related crop damage," the report said.

Somasundaram said gold smuggling in the country is likely to fall "significantly" in 2016, after dropping by 75 tonnes last year to 100 tonnes.

Gold smuggling started rising from mid-2013 as India raised import duties on gold to a record high to narrow the current account deficit and arrest a free-fall in the currency following heavy buying of the metal, a traditional store of wealth for millions of poor and rich Indians.

India remained the second biggest consumer of gold in 2015 after China, where demand last year rose 3 percent to 984.5 tonnes. While jewellery demand in China eased due to a slowing economy, investment demand climbed as a weakening currency triggered demand for gold bars and coins.