After reporting gold imports of 165 tons in the first quarter, Indian gold imports fell 31% in April and May according to the Financial Times of India. Indian Gold imports fell a further 25% in June due to the falling Indian Rupee.
In contrast, as BGASC reported, Indian Silver imports through the first four months of this year were on record pace and according to Bloomberg continued at a torrid pace through the first six months.
Indian gold and silver imports are considered a good proxy for overall Indian demand as India has virtually no domestic gold mines and a limited silver mining capacity.
Is Indian Gold demand really falling that dramatically?
Given the dramatic divergence in Indian silver and gold imports, one might think Indians have gone off gold and are substituting their gold passion for silver. While, there may be increased interest in silver in India for consumer items like jewelry and silverware and increased demand for silver for industrial use, Indian interest in gold has not abated.
Indians love gold. Analysts estimate the amount of gold in private Indian citizens’ hands and temples to be approximately 23-24K tons (approx 771,617,928 ounces), worth over 1 trillion dollars!
While Indian households and temples are estimated to own nearly 20,000+ tons of gold, the Reserve Bank of India lists just 557 tons of gold held as reserves.
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.
While gold imports are generally a good barometer of the strength of gold demand in India, there are other factors of Indian gold demand. A good portion of Indian gold demand is met from secondary supply or existing gold stocks in the country. Analysts believe part of the decline in Indian gold imports during the first half of 2018 is due to an increase in recycling of existing gold in the country. Higher gold prices, tend to incentivize gold holders to bring theirs to the market. If secondary supply increases, fewer imports are required to meet demand.
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.
Another component of Indian gold demand is met by smuggling and, like Dore imports, is not captured by the official Indian gold import numbers. Estimates vary as to how much gold is smuggled each year and its difficult to get an accurate reading on the amount of gold smuggled into India each year.
Any time Indian gold imports increases, 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.
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.
Anyone following the gold market, will notice the near daily headlines of thwarted Indian gold smugglers. Keep in mind for every reported story of a captured gold smuggler, there are bound to be unreported stories and of course, countless more smugglers that avoid border detection.
Here is a short list of some of the Indian gold smuggling stories:
Indian Gold Smuggling Headlines
Tola Gold Bars – The Weight Used to Measure Gold in India
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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.