Indias gold imports rocket higher by 179% in December
Any concerns that the biggest consumer of gold in the world alongside China had lost its appetite for the yellow metal have dissipated with news that Indias imports exploded higher in December.
Indias trade deficit widened to the most since August as a 179% surge in gold shipments slowed an overall decline in imports, Bloomberg reported. Gold shipments rose to $3.8 billion, boosted by demand from the so-called wedding season in India that typically runs through mid-March.
Gold demand increased in December when prices were at the lowest level in 2015, and as retailers increased their inventory to optimum levels, said Sudheesh Nambiath of the metals consultancy GFMS.
A separate report from Reuters confirmed that festive buying in India is picking up. Those who have weddings next month are purchasing gold, Kumar Jain of the Mumbai Jewellers Association said.
Smugglers defy import duty: The nations biggest imports after crude oil are gold and electronics. The new trade deficit has spurred talk that maybe the Indian government should increase import duties once again to correct the imbalance. However, some in official circles are having none of that talk, and of course Indias huge jewelry manufacturing and retail industry opposes any increases and is lobbying for further cuts.
There is already a high duty (on gold imports) now so doing higher and higher import duties can in fact become counter-productive, more smuggling avenues, etc., and that is why we do not want to try and take further aggressive measures from our end, Additional Secretary in the Commerce Ministry Arvind Mehta said. Mehta was referring to the explosion in gold smuggling that occurred after the government preceding current Prime Minister Narendra Modi imposed a 10% import tax.
Gold interest rises as stocks fall: Instead, the government is banking on monetizing the nations current stockpile of gold, much of it held in Hindu temples across the nation as well as in individual households. This week it launched another round of sales of its sovereign gold bonds, which pay interest.
Hopes for the bonds are running high in some quarters. Given the correction in the stock market, interest is shifting in favor of gold, said Harish Galipelli at Inditrade Derivatives and Commodities. Investors are looking for safe-haven assets.
However, the first tranche of gold bonds were unpopular. Why? Because Indians are obsessed with physical gold, and paper representations simply dont measure up to the real thing.
Distrustful of banks: For centuries, East Indians have regarded gold as the primary source of wealth, noted Jeff Thomas of the International Man Web site. All Indians own gold if they can afford to. They keep it as close as possible, sometimes in coin form, but often as jewellery, since wearing wealth means that it can be kept very close. Theyre often especially reluctant to trust banks to hold their gold.
Hindus make up 80% of Indias population and, to Hindus, gold is sacred a symbol of purity, prosperity, and good fortune. It plays an important part in all Hindu ceremonial occasions and Hindus donate large amounts of gold to the temples. The temples are also distrustful of bank storage, although some do store gold in banks.
Chances are it will be a long time coming before the governments gold-linked bonds replace the love of coins and jewelry burned into the Indian psyche. In the meantime, demand is on the upswing in one of the biggest influencers in the global gold market.