Indian Houserholds vs central banks

2019 India Gold Imports Pick Up Where They Left Off

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Indian Gold Imports Topped 782 Tons in 2018.

India’s voracious gold demand, as evidenced by gold imports, was a hefty 782 tons in 2018. India gold demand continued unabated in January this year, topping 55 tons. India imported nearly 9,300 tons from 2008 – 2019 or approximately an average of 845 tons a year.

India’s gold imports have been remarkably consistent over the past eleven years despite a wide range of gold prices (from $800 an ounce to $1900 an ounce) during that time period and the institution of a 10% gold import duty in 2013 and an additional jewelry tax in 2016.

Indian Gold imports rose 55% in 2017 to 901 tons up from 582 tons in 2016. Indians tend to hold off on gold purchases when the price rises and buy more when the price drops. 2016 was a year that saw rising gold prices due to Brexit. Those rising prices crimped Indian gold imports which are a good proxy of Indian gold demand because India relies almost exclusively in imports to satisfy its gold demand as it has no domestic gold mining production. With falling gold prices in 2017 and stabilizing prices in 2018, gold imports were higher in both years than 2016 imports.

Indian Gold Reserves are the Tenth Largest in the World

The Reserve Bank of India began purchasing gold in 2018, ending a nine year hiatus of not adding gold to reserves. The RBI has added about thirty tons of gold to her reserves since the fall of 2018.

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The Reserves Bank of India holds approximately 607 tons of gold.

Indian gold demand is also sensitive to the severity of the monsoon season. Strong rainfall helps swell crop yields which in turn gives rural Indian farmers more rupees which many of them use to buy gold to store their wealth. According to reports, India is expected to receive average monsoon rains in 2019.

In 2018, flooding that caused millions in property damage may have contributed to the decrease in gold demand and imports in October and November. The Indian government has been considering slashing the 10% import duty and goods and service tax (GST) on gold. The 10% import duty remains in effect, despite further consideration.

The World Gold Council estimates that about 190,000 tons have been mined in human history. This would mean that Indian citizens hold about 13% of the gold ever mined in the world, with more gold entering the country each year.

In addition, the import of Dore bars (rough gold procured directly from mines that is about 80% pure) into India is on the rise and is not counted in the official gold import numbers. About twenty Indian refiners take the imported Dore bars and refine then into gold suitable for jewelry and gold bars and rounds. Any increase in domestically refined gold from Dore, my impact negatively gold imports.

Indian Gold Imports by the Numbers

Despite rising gold prices and government efforts to reduce gold demand, India’s gold imports were a robust 782 tons in 2018 after surging in 2017 to 901 tons up 54.8% from 2016 imports of 582 tons. Indian gold imports from 2008-2018 have averaged about 850 tons a year. Any time Indian gold imports increase, chatter among government officials begins discussions regarding raising additional tariffs or other plans to lower gold demand and imports. Due to the great demand for gold in India, gold often accounts for 10-20% of overall Indian imports, wreaking havoc with India’s balance of trade. This year’s decline has the government discussing reducing the tariff and or GST on gold.

The Indian government has tried to curb gold demand with a 10% gold import tariff instituted in 2013, and a variety of jewelry and goods and services taxes. The taxes have not had a noticeable impact on gold demand and have resulted in increased smuggling. It seems only higher prices slows gold demand in India.

Indian Houserholds vs central banks

Indian household gold holdings far exceed the top gold holding nations’ gold reserves including India’s own central bank which holds 607 tons or the tenth largest gold holdings among nations.

India’s growing population and increase in income levels has created large and steady annual gold demand that shows no sign of abating. India launched a gold monetization scheme two years ago in an attempt to wrest some of that gold away from its citizens and temples. Under the scheme the Indian government offered Indians a chance to “loan” their gold to the government in exchange for interest payments. There was a tepid response from the Indian temples and little enthusiasm for the scheme among Indian citizen.

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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.