Gold Silver Reports — It’s hard to keep 1.1 billion gold-loving people from buying the metal they trust most. A poll by the World Gold Council last year found that 63% of respondents in India agreed with the statement “I trust gold more than the currencies of countries.” More importantly, 73% agreed with the statement “gold makes me feel secure for the long-term.” Compare that with the small minority of citizens in the United States that own gold or follow the gold market closely. India is clearly dedicated to owning more gold.
The government of Narendra Modi (India’s Prime Minister since May of 2014) has instituted some of the worst ideas imaginable to regulate the gold market – like huge tariffs or a recall of large-denomination cash – to dampen gold demand, but the people of India will not be denied. Figures just released for February show that India’s gold imports nearly tripled over the same month last year. Gold imports grew from 35 metric tons in February 2016 to 97.4 tons last month. Mehul Choksi, chairman of jewelry store chain Gitanjali Gems Ltd. in Mumbai (formerly Bombay), said “We expect some heavy buying in April as a large number of weddings are expected to take place” (the wedding season runs from April to July).
Citibank has estimated that India’s gold imports will reach 720 tons this year. Longer-term, the World Gold Council estimates that India’s gold imports will reach 950 tons per year by 2020, due primarily to India’s rapid economic growth and the emergence of regulated exchanges not relying on cash purchases.
The newest attack by the Modi government is to limit cash transactions to the equivalent of $4,500 (less than four Troy ounces of gold) as of April 1 – right at the start of the wedding season. That may be one reason for rising demand in February and March. The World Gold Council said, “This will have the greatest impact in rural India, where people do not necessarily have access to checks and electronic payments.” WGC said that one unexpected consequence could be gold shoppers buying “smaller amounts of gold spread over more transactions…or it could push a large part of demand underground and encourage growth in the black market,” but “over time, consumers will move away from cash towards digital payments, and organized players should benefit from this trend. This change in market dynamics will result in more transparency and a better deal for consumers, protecting them from shady practices such as under-karating,” a practice of labeling jewelry as 14-karat, for instance, when it may be 10- or 12-karat. This practice makes ownership of pure (.999+) gold coins and bars far preferable to gold jewelry. — Neal Bhai Reports