Tag Archives: gold

In India Gold Demand Never Fades, It Grows

jewelry-india-gold-demand

NEW DELHI, May 10, 2015 (MAMOSA Report) — 75% of India’s gold demand is in the form of jewelry, with 2/3rd of that coming from rural population, a World Gold Council report says.

The South Asian giant is the second largest consumer of gold after China – constituting about 1/4th of the global gold demand. Last week a local media reported that the Indian public hold 20,000 tons of the yellow metal in jewelry, coins and gold bars — for a historic high of $1.16 trillion, based on the gold price in 2012.

Gold demand in India is primarily driven by the demand for jewelry which is considered as a store of wealth and “love trade” — a deep-rooted custom and cultural attribute, especially for India’s predominantly rural population, where people do not have many choices for investment other than real estate and retail participation in equity markets is very meager.

While gold prices have quadrupled during the past 12 years, the hunger for gold has not diminished in India as seen from the below chart.

india-gold-price-demannd

Comparison of India’s gold import bill — after levy of 10% import taxes and mandating at least 20% of the imported gold to be exported before bringing in new lots (called ’80:20 scheme’) — with gold prices show almost insignificant effect in government aim to curb its import. In fact in absolute terms, it has kept steady and growing!

The comparison shows that while gold prices were heading northwards, India’s imports also have been moving up. The correlation of 12-month moving average demand with gold prices is very high at 0.9.

The depreciation of the Indian Rupee – which leads to much higher cost of gold for Indian consumers – does not reveal any adverse impact on the quantity of gold demand (in tons).

In other words, the demand for gold in India has not decreased despite gold prices increasing significantly in the past decade, and despite unfavorable currency movements. The key factor driving gold consumption demand is India’s favorable population dynamics, according to the report.

Another report forecasts that the Indian middle class will grow from 31 million households in 2010-11 to 53 million in 2015-16, and further to 114 million households or 547 million people. “This will continue to support increase in consumption of gold by Indian households”.

It is expected that in the long term, gold demand from India will continue to rise, and will support long-term gold prices.

Arun Jaitley, the Indian Finance Minister, has reportedly said that the government does not have data on gold held by the general public.

According to Profit Confidential which recently compiled a list, the Reserve Bank of India holds 557.7 tons of the precious metal, compared to number 9, the Netherlands at 612.5 tons, and eighth-ranked Japan at 765.2 tons. The top 3 gold hoarders are the United States at 8,133.5 tons, Germany at 3,384.2 tons, and Italy at 2,451.8 tons.

Gold has been pouring into India since the government last November scrapped gold import restrictions, including the 80:20 rule, which required gold traders to export 20 percent of the gold that they imported. In April Reuters reported that gold imports more than doubled to 125 tons in March from the 60 tons in the year-ago period. Gold imports for the fiscal year 2014-15, which ended at the end of March, were up 36 percent to 900 tons.

Most of India’s import figure of India reflect private demand for “love trade” in gold, as Frank Holmes of US Global Investors likes to say.