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LAWRIE WILLIAMS: Indian gold demand on the up again

The world’s two leading nations for gold consumption are China and India.  The latter was for many years the world’s largest consumer before it was overtaken by China a few years ago, but has still remained one of the world’s two largest consuming nations for historic reasons and the hugely significant place gold holds in the psyche of the Indian population.

In recent years the level of gold uptake there has tended to vary somewhat as the nation’s government has implemented policies to try and reduce some of the inbuilt national demand.   India has been a massive importer of gold as its own production is nowadays extremely low and the impact of these gold imports on the country’s balance of payments has been significant.  In the past year or so demand has also been adversely affected by the impact of the coronavirus pandemic.  Thus it is extremely encouraging for the global gold market that there are reports of a substantial Indian gold demand pickup in the latest month for which statistics are becoming available

Thus a report from Reuters that the nation’s gold imports in August almost  doubled from the figure of a year earlier to the highest in five months is particularly encouraging.  The increase is attributed to a strong demand pickup brought on by weaker prices which prompted jewellers to ramp up purchases ahead of the festive season, according to an anonymous government source.

According to the Reuters report. India imported 121 tonnes of gold in August, compared to 63 tonnes a year earlier, the source said on Monday on condition of anonymity as he is not authorised to speak to media.

Reuters sees the higher level of gold imports by the world's second-biggest bullion consumer as potentially supporting gold prices which have fallen back around 13% from the yellow metal’s all-time price high of $2,072 which it reached in August last year. The surge in imports could increase India's trade deficit and pressure the rupee, though, comments the Reuters report..

In value terms, August imports surged to $6.7 billion from $3.7 billion a year ago, the source is reported as saying. The sharp gold price correction in the first half of the month thus provided an ideal opportunity for jewellers who wanted to build inventories for the upcoming festive season, a Mumbai-based dealer with a gold importing bank is reported as commenting.

Local gold futures had fallen to 45,662 rupees per 10 grams on Aug. 10, the lowest in four months.

The Reuters report goes on to note "Retail demand was good in August as coronavirus cases fell and people stepped out to shop," according to Harshad Ajmera, a gold wholesaler in Kolkata.

On the virus pandemic front, Indian authorities had imposed localised lockdowns in the June quarter as COVID-19 infections surged to a record high, but allowed businesses to reopen in a phased manner as cases fell back again.  In relation to population size, India has been less affected by coronavirus cases per head of population than most other countries, although total infection figures remain very high.  However one cannot be certain how accurate infection figures and mortalities really are in such a densely and highly, populated nation.

Reuters notes also that India's official gold imports in the first eight months of 2021 appear to have tripled to 687 tonnes, assuming the reported August figures are confirmed , in comparison with the previous year’s figures.  But in 2020 the coronavirus outbreak incidence forced authorities to impose a nationwide lockdown which will have seriously impacted the official figures.

However, India’s official figures certainly understate the true picture of India’s gold imports.  A separate report published on MSN, noted that in 2020, Indian officials say they seized $185 million worth of gold being smuggled into the country. But that’s seen as only a drop in the bucket.  Experts are said toe estimate that around one-fifth of around 1,000 tonnes of gold that entered India last year arrived illegally. That’s equal to about $11 billion worth of the yellow metal.

The reason for the high levels of smuggled gold into India is seen as simple: India is one of the largest consumers/fabricators of gold in the world but isn’t even in the top 50 in terms of production. High tariffs on gold imports have resulted in a booming smuggling industry, officials say.  India is home to a huge jewellery fabrication industry, and gold has long had strong cultural and economic significance, being used to celebrate milestones like births and weddings, as well as a secure way to stockpile wealth during periods of financial instability. 

The Reuters report goes on to suggest that the country's official gold imports in September could rise above 80 tonnes from 12 tonnes a year earlier if prices remain stable ahead of festivals, according to a Chennai-based bullion dealer.

08 Sep 2021 | Categories: Gold, China, India

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