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LAWRIE WILLIAMS: Indian gold imports heading for 900 tonnes in 2017 – maybe.

As we’ve noted in our just published article on the Shanghai Gold Exchange’s October figures, Asian gold demand this year to date is definitely trending higher.  Chinese gold demand figures look to be advancing this year compared with last, but India’s even more so.  While the latter probably won’t get back to its old level of 1,000 tonnes as it was only a few years ago, before it was superseded by China as the world’s largest gold consumer, it looks as though 2017 imports may reach 900 tonnes if imports in the final three months of the year come in at a similar level to last year, although mixed reports out of India do suggest demand at this time of year may be running 10-15% lower than in 2016, in part due to the imposition across the country of the new Goods and Services tax (GST).

In the first nine months of this year, though, India’s known gold imports have already totalled some 667 tonnes compared with only 510 tonnes for the whole of last year, and October and November in particular tend to be strong months for Indian gold demand encompassing the biggest of the Hindu Festivals in Diwali and the peak wedding season which runs through the final quarter of the calendar year.  And for Indian weddings gold is particularly important.

Diwali – the 5-day Festival of Lights – took place this year in late October.  As well as being celebrated by Hindus it is also an important Festival for some other Indian minority religions – Sikhism and Jainism – so the Diwali celebrations draw in perhaps around 1 billion people in the Indian subcontinent alone, as well as several millions of others living elsewhere in the world.  An important part of the Festival is the worship of Lakshmi, the Hindu goddess of wealth, as the bringer of blessings for the New Year.  And in India wealth is inextricably linked with the possession and the gifting of gold.  Indian weddings too tend to inolve gifting of gold.

To an extent Indian gold imports correlate pretty closely with demand, although the relatively high import tax on gold implemented by the Modi government has led to an upsurge in gold smuggling, which some have estimated may be at a level of perhaps 250 tonnes a year.  This obviously does not appear in official figures, so Indian gold demand may be rather higher than the official data might suggest.

However one looks at the figures out of India and China, between them they account for the consumption of the vast bulk of global newly mined gold which is mostly held there in firm hands.  Although it may, in theory at least, be held to protect wealth against hard times, little actually ever seems to come back on the market.  Thus this sector of demand remains pretty robust while global supply has almost certainly peaked and may be beginning to fall – although not significantly as yet.  With a pick up in European demand, although that in North America remains weak, we don’t see any serious gold surplus developing.  Indeed a longer term deficit seems to be developing, although gold ETF inflows and outflows could provide something of a balancing factor here.

Latest figures out of China – the world’s largest gold producer/miner – suggest that gold output was down 10% in the first half of the year.  With production flat, or declining, in most parts of the gold producing world, with little prospect of significant new mines opening to replace declining output elsewhere due to capital expenditure and exploration cutbacks to cut costs, we could be in for a period of ever tightening supply.  This is bound to have an impact on price long term, particularly if major consumers like India and China maintain their demand levels.  It’s not if, but when!

08 Nov 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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