We focus on India a lot. Why? Because Indians have a love affair with gold. It’s not just a luxury. Even the poor buy gold in India.
There are two main reasons to follow the Indian gold market closely. First, the country ranks second in the world in gold consumption. What happens in India can have a major impact on the world gold market. Second, the attitude of the Indian people can teach us a lot about the wisdom of buying and owning gold.
Indians bought more gold in the first half of 2017 than they did all of the previous year, as the yellow metal continues to flow from the West to the East.
Indians within every economic class buy gold. Even the poor in India invest in the yellow metal. But demand for gold slumped to a seven-year low in 2016, leading some to wonder if Indians had lost their appetite for the metal.
How’s this for a nightmare scenario?
You’re driving a truck filled with tons of gold along a public highway and you blow a tire.
This actually happened in India back in the early 1991, and it underscores the importance of security for your gold.
While you may think of gold as a luxury item, many Indians view it as a necessity. In the Asian nation, buying gold is not just for the rich. In fact, a recent survey shows that possessing the yellow metal is a universal phenomenon across all income classes in India.
The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system. This explains why even the poor buy gold in India.
Young people in India are buying gold.
Indians have traditionally invested in the yellow metal. Based on sales reported by a new digital platform in the Asian country, it appears the upcoming generation has embraced their elders’ love of gold.
The Indian digital wallet company Paytm launched Digital Gold in April. Company officials say they have sold around 100 kg of gold through the application, with a 100% month-on-month growth since its launch. Paytm senior VP Krishna Hegde told the Economic Times of London that most of the customers are young people.
Late last month, the gold trading industry in India announced plans to set up 100 hallmarking centers, and establish a precious metal assay and training institute in an effort to ensure the purity of gold sold in the country.
According to the Economic Times of India, “Indian Association of Hallmarking Centres has submitted a proposal to the Bureau of Indian Standards to issue a certificate along with each jewelry sold, capturing its photo, purity, weight and the names of the center that put the hallmark and the jeweler who sold it.”
Gold hallmarks show the purity of a piece of gold jewelry. They generally include the mark of the assaying office that certified the purity, as well as the fineness or caratage of the gold.
Analysts at the World Gold Council say they believe a new tax plan set to go into effect in India will ultimately boost demand for gold in the world’s second-largest market for the yellow metal.
On July 1, India’s current labyrinth of taxes will be replaced by a nationwide Goods & Services Tax (GST). The World Gold Council called it the “biggest fiscal reform since India’s liberalization in the early 1990s.”
While gold consumers will face a slightly higher tax rate, and the industry will go through a period of adjustment, we see the net impact on the gold industry as being positive. The gold supply chain should become more transparent and efficient, and the tax reform can boost economic growth, which we see as supporting gold demand.”
Gold is flowing into India and China, as demand for the yellow metal in the world’s two largest markets continues to boom.
Gold imports into India surged once again in May, building on strong March and April numbers. Increasing imports signal a continued rebound in demand for the precious metal in the world’s second-largest market after a tepid 2016.
According to a Reuters report, gold imports quadrupled in May year-on-year, coming in at 103 tons. Analysts say they expect the rise in imports will likely help support global prices in the coming months.
The Indian government set the tax rate for gold under the uniform goods and services tax lower than expected, sending a wave of optimism through the country’s gold and jewelry dealers. Analysts say the lower rate signals a potential recovery in demand for the yellow metal in the world’s second-largest market.
According to a Bloomberg report, India fixed the duty at 3% over the weekend, lower than the 5% expected.
In an effort to bring order to India’s gold market, the government has partnered with the World Gold Council to create a physical spot-gold exchange. According to Bloomberg, it could be up and running as soon as next year.
The move toward an India spot-gold exchange is part of a broader bullion industry self-regulation effort gaining steam in one of the world’s leading gold markets. Last month, three committees formed – one to study a gold trade code, one to formulate good delivery rules, and a third to explore a spot exchange. The committees were born out of a meeting that included business chambers, the World Gold Council, banks, the Indian Bullion and Jewellers Association (Ibja), and the India Gold Policy Centre at IIM-Ahmedabad.