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As Gold Imports Surge, India Looks to Give Clarity to the Gold Market

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Indian Gold Imports Spike in 2017.

India’s gold imports continued to surge in 2017, despite government efforts to reduce gold demand. Indian gold imports for the past decade have averaged over 800 tons a year.

Through November 2017, India imported 818 tons of gold or approximately 26.3 million ounces. Since India has virtually no domestic gold mining production, gold imports are a good proxy for gold demand in India. 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.

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 curbed gold demand and have resulted in increased smuggling. Analysts estimate the amount of gold in private Indian citizens’ hands and temples to be approximately 18-22K tons. 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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Here is a chart of Indian gold imports for the first eleven months of 2017.

Indian gold Imports 2016 - 2017 November
In 2017, Indian gold demand peaked at 124 tons in May.

Here is a monthly chart showing monthly Indian gold imports from 2014 -2017

Indian gold imports monthly july 2014 - November 2017
Indian gold imports topped 100 tons in eight months from 2014- 2017.

Here is a chart of Indian gold imports from 1999-2017 (through November)

Indian Gold Imports 1999 - 2017 through November
Indian gold imports have averaged over 800 tons a year since 2005

Royal Bank of India Gold Reserves

India has had a culture affinity with gold for thousands of years. While Indian households and temples are estimated to own nearly 20,000 tons of gold, the Royal Bank of India lists just 557 tons of gold.

Gold reserves by central Bank top 10 through November

Indian central bank gold reserves are tenth among individual nation central banks.

India’s War on Gold, Coming to a Close?

The Indian government appears ready to embrace gold rather than to continue fighting it. While gold has been Indians’ preferred asset class for thousands of years, earlier this month the Indian government announced that it intends to develop gold as an asset class as a matter of policy. Some of the initiatives include encouraging financial institutions to develop gold-backed financial products, developing regional regulated gold exchanges, supporting the gold recycling market and revamping/relaunching its gold monetization scheme. These efforts, along with recent innovations in “digital gold” offerings, will provide Indians with more gold options to store and trade their wealth in the coming years.

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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.