Koos Jansen
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Koos Jansen
Posted on 24 Mar 2015 by

Indian Gold Import Exploding In March

March has not even ended, though preliminary data indicates India has already imported over 130 tonnes of gold this month.

Because of a “current account deficit” the Indian government decided in March 2012 to raise to import duty on gold from 2 % to 4 %, in June 2013 from 4 % to 8% and in August 2013 from 8 % to 10 %. Additionally, in August 2013 the 80/20 rule was implemented, which was eventually withdrawn in December 2014.

The restrictions the Indian Government implemented on gold trade spawned new life to smuggling cartels with all due consequences. Official Import fell drastically, wiping out any revenues the government collected from the import of the yellow metal. In May 2013 Indian gross gold import accounted for 168 tonnes, by September 2013 a multi year low was reached at 15 tonnes. Premiums in India, over London spot prices, skyrocketed to a staggering 25 %.

Indian gold Premiums march 2015

For a close look at recent import data let’s start with January; India officially gross imported a meager 39 tonnes, though up 9 % year on year. In February gross import accounted for 50 tonnes, up 57 % y/y. Then, the real surprise came this month; as said previously preliminary data (derived from daily numbers at Infodrive) suggests gross import accounts for 130 tonnes (March 2 – 21). When India’s Directorate General of Commercial Intelligence & Statistics will publish official data somewhere around April 13, we know the exact imported tonnage for March.

India Gold trade 3-2015

Perhaps surging import is caused by a falling price since the beginning of the year combined with the relaxation of import restrictions. Remarkably, premiums are staying close to 12 % (including the 10 % import duty), sourcing the metal is no problem.

Indian Gold and Silver prices

From daily trade data we can see a lot of gold from Ghana going directly to India. Could it be there is some conflict gold coming from Ghana?

Screen Shot 2015-03-24 at 2.33.56 PM

Monetizing Gold

A new scheme the India government is looking at to obstruct gold import is through monetizing gold, comparable to the Turkish system (read this post for the Turkish Reserve Option Mechanism). The World Gold Council’s managing director in India, Somasundaram PR, stated:

Will they allow banks to hold a part of their reserves in gold because of this deposit monetization? It is one of the recommendations. You need to give huge incentives to the banks to operate this deposit monetization.

In short, the Indian people would be able to make a gold deposit at a commercial bank, which technically is always a loan to the bank. Subsequently this bank can use the gold to meet its reserve requirements at the central bank – in this case the Reserve Bank Of India (RBI). The deposits would accrue interest (in Turkey denominated in gold), however, like every bank deposit, the gold can vanish if the bank becomes insolvent. The universal rule is; no risk, no return.

Furthermore, if the gold deposit scheme will be implemented, to the likes of the World Gold Council, I wonder how the RBI will treat the gold held as reserve requirement. The Turkish central bank (CBRT) counts these reserves as official gold reserves, which is double counting.

Turkish Official Gold Reserves

Increases in Turkish official gold reserves are not caused by CBRT purchases on the open market, but a reflection of the amount of gold held as reserve requirement by banks at the CBRT.

The World Gold Council has released two reports on gold monetization, (i) Why India Needs A Gold Policy, (ii) Turkey: gold in action. Both reports combined count nearly 90 pages, but not once are the risks of lending gold to a bank disclosed. Whereas most people own gold to explicitly avoid these banking risks.

Another plan from the Indian Government to prevent the circulation of “black money” is to require people doing gold purchases above 100,000 rupees, to show a so-called permanent account number (PAN), which is used to prevent tax evasion. This would be disastrous for the Indian jewelry industry as 80 % of the industry’s business comes from rural customers, who don’t have a PAN. Hence, Indian jewelers have threatened to go on strike against this plan.

Koos Jansen
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  • KoosJansen

    12 tonnes in three weeks came from Ghana. According to USGS Ghana mines 90 tonnes a year. http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2015-gold.pdf

  • sb

    Link for those who would be interested to check the underlying data themselves

    http://www.infodriveindia.com/india-import-data/gold-bar-import-data.aspx

    • rowingboat

      Beauty, thanks again for another data source!
      The more eyes looking at the underlying data the better.

      • sb

        infodriveindia is doing a great job collecting data in almost real-time. At least they should get some more internet traffic for that.

  • karendelise

    Thanks for this report. It is so fascinating to watch how oblivious (and uninterested) the Western world is to the huge inflows of gold to the East.

    • rowingboat

      Who cares when you’re making so much money elsewhere?

      When Western investors do become interested again, the current flow from UK to Switzerland will decline significantly & bullion bank holdings in London vaults will increase again. Chinese and Indian demand will recede with the rising price.

      London is the valve, opening and closing and controlling the flow. I’m convinced of it given the historic UK & Swiss import/export data.

      The million dollar question is what proportion of the bullion imported to the UK during the bull market in particular, will be exported before the tide turns again?

  • Reader

    Can I suggest that when using direct quotes used during an interview with another publication that you abide by protocol and state the name of the publication alongside a link, as opposed to just linking the word “stated.” – it is considered common courtesy in the media world.

    Enjoyed your article as usual nonetheless,

    Thank you.

    • KoosJansen

      There is a link right?

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