Indian Gold Imports Slow in the Five Months of 2018.
While Indian silver imports appears to be headed toward an annual record, Indian gold imports are on pace to come in below the average annual amount of about 850 tons from 2008 – 2017. Through May, Indian gold imports were 308 tons. At the pace of the first five months, Indian gold imports would come in around 740 tons in 2018.
Indian gold imports spiked in May to 83 tons -their highest levels of the year- as the price of gold fell from its highs earlier in the year. The price of gold has fallen further since May, but preliminary figures for June of imports of 58 tons do not show a corresponding increase in gold imports. The price of gold fell further in July but we do not have preliminary July figures for Indian gold imports so we do not yet know if the lower prices prompted increased gold imports.
Indian Gold imports rose 55% in 2017 to 901 tons from 582 tons in 2016. Indian Gold imports through the first five months of 2018 were 308 tons, on a pace ahead of 2016 imports. Indians tends to hold off on gold purchases when the prices 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.
Elevated gold prices in the first quarter of 2018 dented Indian gold demand and imports. In contrast, lower gold prices in May may have caused a spike in Indian gold imports. If lower gold prices drive Indian gold imports, we may see an increase in gold imports in July and August as the price of gold has fallen from a high of $1,359 an ounce in February to a low of about $1,213 an ounce in early August.
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, farmers’ fortunes this past winter have been dented by oversupply and in some instances failed crops due to lower than normal rainfall during the monsoon season.
India reported importing 308 tons (approximately 9,902,430 troy ounces) of gold in the first five months of 2018, highlighting the prodigious gold demand that continues to exist in that country, even when imports decline. This reflects an approximately 15% decrease in imports from the first five months of 2017.
Do Lower Gold Imports Mean Demand for Gold in India Falling?
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 three months 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. 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!
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 surged in 2017 to 901 tons up 54.8% from 2016 imports of 582 tons. Indian gold imports from 2008-2017 have averaged over 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.
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.
India’s 901 ton gold imports in 2017 were approximately 29 million ounces.
Indian household gold holdings far exceed the top gold holding nations’ gold reserves including India’s own central bank which holds 557.7 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.
Tola Gold Bars – The Weight Used to Measure Gold in India
Reserve Bank of India Gold Reserves
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.
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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.