The World Gold Council (WGC) believes gold demand from India - the world's largest gold market by volume will remain strong as Indians grow richer and the nation's potential for buying more gold increases.
The WGC said in its latest World Gold Trends issue high and volatile prices might dent India's passion for gold but demand for gold appeared likely to remain high and rising in a scenario of more favourable price movements.
India's gold offtake per capita was currently not very high at 0.68grams of gold per capita in 2007, compared to other countries with a strong gold culture, such as Saudi Arabia with an offtake of 5.4g of gold per capita, Turkey at 3.2g and Egypt at 0.9g.
This was a reflection of the country's large population and relative poverty compared to most other key gold markets. India's GDP per capita on a purchasing power parity basis was $2,460 in 2006 compared to $4,660 in China and $8,410 in Turkey.
However, the potential for additional gold buying in India increases as Indians become more affluent, despite the fact that this may be tempered by the increasing variety of other goods and services on offer.
The WGC said the degree of economic prosperity was a key factor of gold demand as seen in the fact that rapidly rising incomes have supported the growing level of spend on gold jewellery.
However, rising prosperity also brought wider choice of goods and services to consumers and therefore increased competition.
The dominance of rural markets in India also meant that rural incomes and the quality and extent of harvests were still important factors in gold demand. A good or bad monsoon still affected gold demand, said the WGC.
According to the WGC gold demand is also seasonal and wedding seasons play an important role in demand due to the quantity of gold purchased for weddings. Although it is sometimes difficult to discern a clear seasonal influence, the second quarter has recently become the generally dominant period for gold demand.
This quarter includes a key period for weddings around April and May and the increasingly important Akshaya Thritiya festival - a key gold buying occasion.
Another important factor influencing gold demand in India is price, while the effect of the gold price and price movements on demand in India is complex. At one level, a higher price means jewellery is less affordable and bought in lower quantity.
But a higher gold price also underlines the investment element of gold buying and it is therefore only a partial deterrent to gold purchases, making gold jewellery demand relatively price inelastic.
The result has been that other factors, notably the rise in incomes, have succeeded in compensating for the adverse effect of the rise in price.
In addition, the influence of price level is far less noticeable in India compared to the presence or absence of price volatility. Indians will refrain from buying gold in periods of volatility as gold jewellery is traditionally sold by weight at a retail price set at a fixed mark-up on the actual price of gold.
In addition, Indians are also opportunistic buyers, who make purchases when the price dips or when it is seen as favourable.
The WGC said India has always been the market most sensitive to price volatility, but as the gold price rose in recent years and became more volatile, its sensitivity to volatility also increased.
High prices inevitably make consumers more nervous of price volatility and more alert to favourable buying opportunities
Since 2005 there have been huge swings in Indian jewellery demand: The fourth quarter of 2006, a period of favourable short-term price movements, saw jewellery demand of 160 tonnes, while the fourth quarter of 2007, which saw the price rising rapidly, saw jewellery demand of 49 tonnes.
The WGC said the impact of price volatility on physical investment demand was relatively similar.
India's gold offtake in 2007, including jewellery, net retail investment and industrial uses, amounted to just under 800 tonnes - over a fifth of global demand and more than double its nearest rivals of China at 350 tonnes and the US at 340 tonnes.
Indian love of gold and silver is deep-rooted and embedded in historical, cultural and religious traditions.