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Precious Metals Import India 2015 Strong, Government Hopelessly Continues To Obstruct Demand

While India’s gross gold bullion import in 2015 reached the third highest amount ever at 947 tonnes and gross silver bullion import reached the highest amount ever at 8,504 tonnes, the Indian government is perpetually trying to obstruct the populace from protecting their wealth. 

Last week I was going through gold and silver trade data released by the Indian Directorate General of Commercial Intelligence and Statistics (DGCIS) and observed strong import of precious metals in 2015. At the same time I was reading the documents, news came out that stated the Indian government was to implement extra rules to hinder its people from buying gold. In my view, the situation in India is another perfect example of a government’s nonsensical fight against the economic tide. Central banks do it all time don’t they?

In an ongoing failure to understand what capitalism is about, the Indian government continues to “disagree” with its citizenry where savings should be placed. Whenever the Indian people increase gold purchases to secure their financial wellbeing, the government is keen to find new tactics to suppress this free market expression. The government aims the country’s wealth to be where it suits them – in the fiat currency they issue and control, but the populace believes fiat currency is inherently vulnerable and chooses physical gold for its long-term wealth preservation. It seems the more the Indian rulers resist private gold demand, the stronger the forces they’re fighting become. As we’ll see below, most undertakings by the government to keep its people from buying gold have been in vain.

First, let’s have a look at an overview of all the measures undertaken in the past years. At the end of the post I will present the details of the latest gold and silver import data (India mostly relies on import for its precious metals hunger).

When the price of gold made its famous nosedive in April 2013 Indian physical gold demand skyrocketed off the charts; in May 2013 India imported 165 tonnes of gold, the highest monthly tonnage ever. In reaction, the government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20 rule” was implemented, forcing traders to export 20 % of all imported gold. The import duty on silver was raised to 10 % as well, although silver was not subjected to the 80/20 rule. The result was that by September 2013 India’s gold import through official channels had fallen to a mere 16 tonnes, but smuggling in gold had exploded. Gold trade was diverted to the black market with all due consequences – thriving criminality threatens social and economic stability – and India’s established gold industry organizations fiercely objected the government’s policy. Another consequence was that silver import has seen spectacular increases ever since (see further below).

Although heavily restricted, Indian gold import through official channels bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn in November 2014 while the Indian government was preparing a new trick: the gold monetization scheme, which was to “to mobilize the gold held by households and institutions in the country” and ”be able to reduce reliance on import of gold over time to meet domestic demand”. In my words, the scheme was intended to oversubscribe the people’s gold by exciting them to deposit their metal at commercial banks. The catch is that the gold depositor is technically lending his gold to the bank, whereby he risks losing his metal if the counterparty goes belly up – although these risks were not disclosed in the brochure. Ironically, the essence why people buy gold in the first place is protect their wealth, not to take risks (ie by lending). Not surprisingly, the gold monetization scheme has failed miserably. In the first two weeks after its launch in November 2015 only 400 grams trickled in – bear in mind, there is an estimated 20,000 tonnes of physical gold owned by the Indian private sector. It does not look like the gold monetization scheme will ever succeed in India.

Data from the World Gold Council shows Indian consumer gold demand accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to continue their hopeless quest to limit demand. In January 2016 the government introduced a rule that forces jewelry buyers to show a Permanent Account Number (PAN), which the vast majority of rural customers do not have, for any purchase above Rs 200,000. And it proposed the re-imposition of a 1 % excise duty. Remarkably, the excise duty was first introduced in 2012 but rolled back the same year as jewelers went on strike. This time around jewelers are seeking the same relief. Since 2 March they’re on strike indefinitely (speculating; the excise duty will not succeed).

Let’s head over to the most recent (final) trade data released by India’s customs department, the DGCIS. India’s gross gold bullion import in December 2015 was robust at 111 tonnes, up 9 % from November and up 218 % from December 2014. Total gross gold import for India in 2015 came in at 947 tonnes, up 22 % from 2014, the third highest amount ever.

India gross exported 11 tonnes of gold bullion in December 2015, down 22 % from November and up 35 % from December 2014. Gross gold export for the year 2015 aggregated to 150 tonnes, the highest ever, up 136 % compared to 2014. Gold bullion export might be elevated due to India’s increased refining capacity.

Net gold bullion import in December 2015 came in at 100 tonnes. Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on year.

India Gold trade december 2015

India gold import 2015

India yearly gold demand

India’s gross silver bullion import was very strong in December 2015 at 1,042 tonnes, up 71 % from November and up 198 % from December 2014. Total gross silver import in 2015 accounted for a staggering 8,504 tonnes (!), up 20 % from 2014.

As, silver bullion export from India is neglectable, net import in December 2015 accounted for 1,041 tonnes and total net import for 2015 came in at 8,494 tonnes. The latter being 31 % of world silver mining output!

India Silver import trade 12 2015

India silver import 2015

From looking at official precious metals import and demand numbers we can wonder if the many restrictions from the Indian government have accomplished anything to their likes. One thing is for sure; the Indian people did not substantially bought less gold – and did buy substantially more silver.

Instead of hopelessly resisting and intervening in the Indian economy, the government could also choose to allow free market forces and/or even support the people’s love for gold to bolster India’s gold industry for it to become a global powerhouse. Wouldn’t that be much more effective?

Kindly note, the cross-border trade tonnages for this post, calculated by myself and Nick Laird from Sharelynx.com, are based on the Rupee values disclosed by the DGCIS and the monthly average metal prices. The gold and silver bullion import and export figures mentioned in this post exclude smuggling and cross-border trade in precious metals jewelry.

January India Silver Import 462 MT

The DGCIS, India’s customs department, just released the trade numbers for January 2014. Strangely For gold and silver they only disclose the import numbers. To figure out net import I’m aware of only one other source; COMTRADE, but they haven’t caught up until January. For gold we know the Indian government implemented the 80/20 rule in August 2013, meaning gold traders have to export 20 % of their imported gold. By knowing how much gold was officially imported we can thus calculate how much was officially exported.

India officially net imported 28 metric tonnes in January 2014, up 12 % m/m, down 77 % y/y.

Gold trade 1-2014

However, the official numbers on gold import have very little correlation to Indian demand as the majority of gold is smuggled into the country. The main reason for this is India’s import duty on gold that was raised in January 2013 from 4% to 6 %, in June to 8 % and in August to 10 %. Resulting in high premiums and increased smuggling. This chart is from Nick Laird, sharelynx.com:

Indian Premiums AU

In this video by Sunny Pannu from Minaurum gold, Indian gold expert Jayant Bhandari explains the current situation in the Indian gold market.

Another result from the restrictions in gold trade is that many Indians flocked to silver. 2013 Indian net silver import broke all records at 6016 metric tonnes. The Indian gross monthly import average in 2013 was 512 metric tonnes. In January 2014 gross silver import was 461 metric tonnes, down 44 % m/m, up 51 % y/y.

Silver trade 1-2014

India Imported 6125 Tonnes Of Silver In 2013

I’m glad you’re able to read this post. This website has been suffering from many DDOS attacks in recent weeks that not only prevent people from reading my posts, additionally it makes it very hard for me to reach my own server to publish. I will try to figure out how to protect In Gold We Trust in cooperation with my web host to insure better service for my readers in the future.  

Back to business; India’s customs department DGCIS just came out with their final trade numbers for gold and silver in 2013. Only gross import numbers for both precious metals are disclosed in these reports, the export numbers I grabbed from the Comtrade database (although these numbers are quite insignificant).

Starting from August 2013 all Indian traders had to export 20 % of their gold imports. This was a measure designed by the government, on top of an import duty that was raised to raised to 10 %, to slow down gold import. Of course the only result from these measures was that official gold import dropped like a brick, premiums skyrocketed and Indian supply shifted to smuggling. In this next chart by Nick Laird we can see how the import duty pushed the premiums to 25 % in january.

Indian Premiums 2014

The loss for the Indian government is that they miss revenues since they raised the import duty from 4 % to 10% through 2013 and implemented the 80/20 rule. Crime has taken over gold trading with all due consequences. Sadly history repeats itself. Official import crashed hard through 2013.

India gold tm 2103

India gross imported 173 t in H2 2013, down 73 % from 631 t of in H1. Total gross import in 2013 was 804 t, down 20 % from 999 t in 2012. From Jayant Bhandari, who travels a lot through India, I’ve been told that smuggling gold into India is quite easy as customs at the airport and the army at the border are happy to take a bribe. He wrote me:

Some of it comes via planes (via Dubai and Singapore, legally and illegally), some through the Bangladesh border and a minor part through Nepal and Pakistan. I don’t think it is worth the risk to bring it via China. Bangladesh border is the easiest, a few dollars of bribe to the army guys does the job.

I often hear analysts saying that there is shortage of gold in India. Incorrect. It is more liquid a commodity than water is. The spread is so thin that you can often buy and sell at the same price — the trader makes his margin from making jewelry.

Before the 90s, import of gold was heavily regulated and carried a massive customs duty. Of course, in those days most gold arrived in India through smuggling. A big mafia had built up in Mumbai and Dubai, mostly catering to India’s gold demand. Two things happened as a result: Government lost all prospects of earning revenue from gold imports, and most importantly, smugglers ran a ruthless empire in several Indian cities, particularly in Mumbai, controlling human-trafficking (with horrible consequences for poor girls and children) and financing the real-estate and the film industries. They were the unofficial rulers of Mumbai. When restrictions on gold were eased in early 90s under pressure from IMF, the same smugglers took the shape of what got to be known as terrorists. (All this should not sound strange to those who understand the history of prohibition in the US).

The current restriction and heavy custom duty on gold will repeat the consequences of the era before the 90s. But really in an irrational world where rhetoric has more value, who cares about the real consequences? Indeed, based on my many conversations with traders, all gold that India needs is already coming through smuggling. And smugglers want restrictions on gold imports to stay in place — they haven’t had it this easy for a long time.

The premiums on gold, currently 15 % above international prices, pushed a lot of Indian savers into silver. Indian silver import in 2013 was 6125 t, and all-time record, up 189 % from 2115 t in 2012. In December silver import accounted for 825 t, up 108 % m/m, 6560 %  y/y.

India silver import 2103

I wonder if the current Indian government is satisfied about its 2013 precious metals policy and if the next government will choose the same path.

Official India PM Import August: Gold Down, Silver Holds

India’s official gold import is coming down like a hammer. In August India’s gross gold import was a mere 17 tons, – 72 % m/m, – 65 % y/y. The lowest since February 2009. In the first 8 months of this year total gross import accounted for 708 tons, up 111 tons compared to the same period in 2012, or + 19 % y/y.

India monthly gold import August 2013

The main reason for this slump is India’s import duty on gold that was raised  in January from 4% to 6 %, in June to 8 % and in August to 10 %. Another reason is the 80/20 rule that came in force in August, forcing importers to directly re-export 20 % of their gold import. The results are that official import is decreasing, gold smuggling is increasing, premiums are making al time highs and silver imports are up. If we look at a chart from Nick Laird we can see that on top of the import duty Indians have to pay a premium of 12 % on gold, 22 % in total!

India Gold Premiums

Silver demand in india is extraordinary high this year. India gross silver import in August was 369 tons versus 212 tons in August 2012, an increase of  157 tons, + 74 % y/y.  Compared to July 2013 imports decreased 428 tons from 797 tons, – 54 % m/m. Year to date India gross silver import stands at 4311 tons, up 2440 tons compared to the same period in 2012, or + 130 %.

India monthly silver import augustus 2013

The DGCIS has not disclosed any gold or silver export numbers from August.

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