India and Gold

With gold import restrictions lifted, pent up Indian gold demand, a growing population with rising incomes and a deep- seated gold culture, India is set to regain its place as the number one gold consuming nation in the world.

Indian Gold Demand

How To Buy Gold

Update December 16, 2014: Indian Gold Demand Strong as Imports Surge to 150 tons in November, Rupee declines

Update August 2, 2015: India Imports 96 tons of gold in May (see charts below)

Update August 2, 2015 Indian Gold Imports up 61% in April-June Indian gold imports up 61%

Update August 14, 2015 Indian Gold Imports Jump 62% in July

Update September 1, 2015: India Imports 52 tons of gold in June (see charts below)

Update September 9, 2015 Indian Cabinet approves gold monetisation scheme and gold bonds to cut imports.

Images: Can Stock Photo

Gold in India

With all the recent attention on the Save Our Swiss Gold referendum, the repatriation of 122.5 tons of gold by the Netherlands from the New York Federal Reserve, the recent mega purchases of gold by Russia and China and the gold repatriation request made by France’s opposition leader to the French National Bank, gold news around the world has overshadowed India’s gold activities.

While the world (and even former Fed Chairman Alan Greenspan) focuses on the role of gold in the international monetary system, the United States ignores it.

Earlier this month in “Gold Supply and Demand” we noted that the gold supply demand dynamic was in tenuous balance with a slight surplus.

That may be about to change as gold demand is set to get a boost from increased Indian gold consumption.

The Reserve Bank of India Drops the 20:80 Gold Import Duty Rule

India, long the number one gold consuming nation, has been out of the spot light recently and was bumped temporarily by China to the number two spot in 2013 as the Reserve Bank of India (RBI) imposed import restrictions on gold last August in an attempt to narrow its current account deficit and halt a slide in the rupee.

The restrictions included at 10% import tax and a “20:80” rule that required Indian gold importers to prove that at least 20% of the gold they imported would be re-exported as jewelry. The 20:80 rule caused premiums on gold to rise in India (see chart below), a gold smuggling trade to florish and legal imports, initially, to fall.

The RBI surprised the gold market on November 28 when it announced that they were dropping the 20:80 rule. The move was especially shocking because there had been speculation that the RBI was looking to further tighten gold import restrictions.

The 10% import tax remains in effect.

Indian Gold Demand

India Regains its Spot as the Top Gold Consumer in the World

Despite the import duties on gold, the World Gold Council reported in mid November that India had regained its spot in the third quarter of 2014 as the number one gold consumer in the world.

With gold import restrictions lifted, India’s gold consumption should rise as it battles China to retain its crown as the world’s leading gold consumer in 2015.

The Competition – China

China is a relative newcomer on the gold scene and had risen in recent years to become the world’s largest importer and producer of gold.

According to CPM Group, China increased its gold consumption from 10.4 million ounces in 2007, to approximately 18.2 million ounces in 2012, and to 25 million ounces in 2013. China increased its gold production from about 280 tons in 2007 to over 400 tons in 2013.

India’s gold consumption grew from 18.8 million ounces in 2007, to 20.4 ounces in 2012 and even though its growth was curbed the past year by the 20:80 rule, to 21.1 million ounces in 2013.

China’s consumption of 25 million ounces of gold in 2013 propelled it to the top of gold consuming nations and knocked India into second place.

India’s Strong Gold Culture

India is THE gold nation. Gold is embedded in India’s ancient culture. Gold artifacts dating back thousands of years have been found in archeological sites across India.

Gold is also embedded in India’s modern culture, as recently chrnonicled in Reason Magazine and the Economist. It is estimated that Indian households own about a $950 billion in gold (or about 18,000 tonnes)! Indeed, India has a national festival, Diwali, during which Indians buy gold in the form of coins, bars, jewelry and other adornments.

It is estimated that Indians spend 8% of their daily consumption on gold coins and jewelry!

Three Indian gold loan companies in Kerala have 200 tons of gold – more gold than most nations.

Gold Sihk temple in Amritsar, India

India’s Explosive Population and Per Capital Income Growth

More Indians with more money to buy more gold.

With a rising population, increasing income, and removal of import restrictions, India is set to start consuming gold in increasing amounts.

From 2005-2013 India’s population grew 11% (from 1.127 billion to 1.252 billion) and income per capita exploded 81% (from $2,860 to $5,238) during the same period.

Poverty has been reduced the past twenty years from 45.43% of the population in 1994 to just 21.9% in 2012.

Indian population and income source: World Bank

Indian Gold Demand Increases Despite Import Restrictions

The Wall Street Journal noted in April 2014 that while the Indian import restrictions (imposed in August 2013) were curbing growth in gold consumption, they had not curbed existing demand.

Even before the import restrictions were eliminated, Indian gold imports from Switzerland doubled in September to 58 tons up from 27 tons in January. Lower gold prices were probably a factor in the increase that helped Indians absorb the import duty.

Gold researcher Koos Jansen noted last week, before the import restrictions were eliminated, that Indian gold imports in October increased to 106 tonnes, up 13 % month over month and up 260% year over year.

Indian Gold Demand and Uses

The number one use for gold in the world and India is jewelry. Indians use gold in the crafting of jewelry, decorations, statutues and even as thread for clothing called zari.

The bulk of Indian gold demand comes from jewelry.

Global Gold Demand and Jewerly

Jewelry is gold’s number one use.

Indian Demand For Gold Jewelry Surges

In 2013, 83% of the demand for gold jewerly was in Asia of which India accounted for 22%.

In the third quarter of 2014, Indians bought 182.9 tons of gold or nearly 35% of the global gold purchased for jewerly. Indian’s gold jewelry purchases in the third quarter of 2014 were up 60 percent from the third quarter of 2013.

Indian gold jewelry

Indian Gold Supply

Indian Gold Mining Supply

India does not have major gold mine (although some geologists believe India may have significant gold deposits), so its annual 20+ million ounces of gold consumption needs to be satisfied with imports and domestic secondary (scrap) production.

Indian’s gold mining production in 2013 according to CPM Group was just 64,301 ounces. China, in contrast, produced 13.7 million ounces of gold in 2013!

Indian Secondary (Scrap) Gold Supply

Indian secondary gold supply has increased to about 8 -10 million ounces in recent years, or less than half of India’s annual demand. Gold scrap recovery while increasing in India in recent years, has decreased globally.

Global Gold Scrap Supply

Global scrap gold supply decreased from 47 million ounces in 2008 to 39 million ounces in 2013.

India’s percentage of global scrap supply (consumed domestically) was nearly 25% in 2013 up from 12.3 % in 2000.

Global secondary supply of gold was 39.2 million ounces in 2013 of which 9.65 million were in India. In 2000 secondary global scrap supply was 22.6 million of which 2.8 million were in India.

Indian Gold Imports

Update October 29, 2015:

Indian gold imports are on pace to exceed 900 tonnes in 2015.

Indian gold imports are rebounding from last year’s depressed levels.

India imports a large amount of its gold via Switzerland.

Click here for updated Indian Gold Imports Charts

Indian Gold Import Premiums

As a result of gold import restrictions in August 2013, premiums for gold paid in India exceeded those paid for gold in the United States.

Indian gold premiums rose immediately following the imposition of import restrictions in August of 2013 and have since dropped.

Click here for updated Indian Gold Premium Charts

Indian Gold Reserves

According to the World Gold Council, India’ 550 tons of gold make it the tenth largest gold holding nation. Gold represents 7.4% of India’s reserves, according to the CPM Group.

Indian gold reserves.

Save Our Indian Gold?

India holds nearly half of their gold reserves outside of India with the Bank of England and the Bank for International Settlements. In 2012, a private Indian citizen petitioned the RBI to bring this gold back to India. His petition was ignored.

Gold vs. The Indian Rupee

Price of gold vs. the Indian Rupe.

Gold Supply and Demand and India

With global gold demand increasing as a result of countries like Russia and China furiously adding to their gold reserves, and supply threatened by gold mining production reductions due to declining gold prices, any increase in demand from India may tip the gold supply demand balance, like silver, into deficit.

Usually when demand exceeds supply, prices rise. We have seen, however, in recent years that the laws of supply and demand can be temporarily suspended.

For how long?