Indian Gold Imports Rose 107% in August.
Indian gold imports continued to rise in August, climbing to 95 tons, the highest amount since May 2017. India gold imports were up 107% from 45 tons in August 2017, and up 28% from July gold imports of 74 tons. Through August, Indian gold imports were 535 tons. At the pace of the first eight months, Indian gold imports would come in over 800 tons in 2018.
Lower gold prices are fueling the recent increase in Indian gold imports but a lower rupee value may curb imports going forward.
Indian gold imports have moved sharply higher recently. 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, and June imports of 59 tons also show an increase of 10% year over year, July imports were up 25% year over year and August gold imports of 95 tons were up 107% year over year.
Indian Gold imports rose 55% in 2017 to 901 tons from 582 tons in 2016. Indian Gold imports through the first seven months of 2018 were 440 tons, on a pace ahead of 2016 imports. 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.
Elevated gold prices in the first quarter of 2018 dented Indian gold demand and imports. In contrast, lower gold prices in May and June 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 $1,198 an ounce in mid – September. Gold prices rebounded in mid -October to $1220 an ounce.
Indian Gold Reserves are the Tenth Largest in the World
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.
This year, recent flooding that has caused millions in property damage may cause a decrease in gold demand and imports later this year. The Indian government has been considering slashing the 10% import duty and goods and service tax (GST) on gold later this year.
India reported importing 367 tons (approximately 11,799,324 troy ounces) of gold in the first six months of 2018, highlighting the prodigious gold demand that continues to exist in that country, even when imports decline. This reflects an approximately 30% decrease in imports from the first six months of 2017.
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. 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.
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 573 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.