India’s War on Gold Takes its Toll on Gold Consumption in India
Indian gold imports continue to lag through April and are nearly 45% lower year over year. India, historically, is the number one gold consumer in the world, challenged only in the last decade by an economically emergent China. Asian gold demand in general is down this year due to higher prices as jewelry, not investment demand, make up the largest portion of gold demand and jewelry consumers tend to be more price sensitive than investors.
India’s gold demand is satisfied almost entirely from imports as India has only negligible gold mining production. Gold demand in India has been thwarted not only from higher prices but from an imnport duty of 10% on gold, a 5% retail tax on gold jewerly and an additional 15% duty on gold and silver for Indians returning home after one year abroad.
In addition, the Indian government not only is trying to stop gold from coming into the country with a hefty 10% import tax, but also to get Indians to turn their gold in to the government in exchange for interest bearing bonds. In late 2015, the Indian government launched a gold monetization scheme in an effort to get some of the estimated 18,000 tons of gold held by Indian citizens. To date, the Indian government has been unsuccessful with its scheme to “monetize” its citizens gold, having retrieved only a few tons, most of it from Indian temples. The official environment in India is decidedly anti-gold.
As a result of India’s war on gold and higher prices, the price of gold has been discounted India and such discounts are now at record highs.
The gold price in 2016 has risen dramatically, despite lower gold demand in China and India, indicating that perhaps increasing or decreasing physical gold demand does not impact gold prices as much as paper gold trading. Over the past three years, gold demand increased as the price fell, supporting the theory that a large portion of physical gold buying of jewelry is price sensitive and does not necessarily push prices higher.
An increase in gold demand later in the year in Asian, coupled with continued gold ETF buying in the west, however, probably won’t hurt the price of gold.
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This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.