Ahead of the then anticipated change in government, India’s DCGIS customs department’s figures show that official gross gold imports were already picking up strongly in March with the country bringing in 60 tonnes of gold – up from 32 tonnes in February. While this remains well short of the kinds of figures seen before the high import taxes were imposed on bullion it indicates that, should there be a relaxation of some of the measures designed to suppress gold demand imposed to aid India’s balance of payments problems, that imports of gold through official channels are likely to be far higher this year than in the second half of last year, when they slowed to a virtual trickle.
However the true level of Indian gold imports is extremely difficult to assess as it is apparent that a significant portion of the pent up precious metals demand was being supplied through smuggled gold, thus avoiding the import taxes. As smuggling became more and more sophisticated the amounts circumventing customs appear to have risen sharply, although there are obviously no official statistics to quantify this.
Prior to the imposition of the import duties, India was importing around 1,000 tonnes of gold annually, and a return to this kind of level, along with Chinese imports, which are seen as picking up again as the gold price has fallen back, serve to confirm the Bloomberg estimates we reported on three weeks ago suggesting that India and China between them are taking in more gold than the world mines.
As Koos Jansen puts it in his In Gold we Trust blog, the jump in official gross import is significant because the Indian government had tried to hold down gold imports since they skyrocketed in April and May 2013 and thus raised the import duty on gold from 6 % to 8 % in June 2013 and to 10 % August, when the 80/20 rule (20 % of all imports need to be re-exported) was also implemented. As a result of these measures gross imports fell 73 % to 44 tonnes in June, from 165 tonnes in May last year – so there is still a way to before the pre-high import duty levels can be reached again. But it looks as though the figures had again been beginning to rise and it will be very interesting to see the April and May figures when they are published (despite these still being subject to the higher duty levels until such time as the new Modi government decides to relax them, which is widely anticipated). As noted below they could yet be something of a disappointment.
Jansen also points out that since the high import duties were imposed demand for silver in India has risen – something that has largely passed the mainstream media by given that it has tended to focus on the fall-off in gold imports. Jansen notes that in 2013 gross silver imports were a ‘staggering’ 6,125 tonnes, up 190 % from 2,115 tonnes in 2012 as Indian consumers moved into the far cheaper precious metals option.
Writing in New York, Jeff Nichols in his latest www.nicholsongold.com newsletter to clients also comments on the potential impact of resurgent Indian demand. He reckons that, should the new Modi government budget roll back import duties and abandon other anti-gold policies, pent-up demand for gold within India may unleash a gold-buying spree that, other things being equal, could send the world price much higher. He comments that in anticipation of a relaxation of the import duties, gold imports may have now fallen back again in the past couple of months as buyers are waiting for controls to be relaxed before getting back into the market. He suggests that the new government will likely reveal its hand with respect to gold in its forthcoming budget due to be issued next month. He further suggests that a significant relaxation (or total revocation) of the current anti-gold policies is likely to take effect by late August, just ahead of the September-December festival and harvest season when a lion’s share of the country’s annual gold buying typically occurs.
If Nichols is correct, and Indian demand takes off after August, then this could yet be another trigger to help push the gold price sharply higher in the latter part of the year – as predicted by Peter Goodburn and his WaveTrack International Elliott Wave forecasting analysis we reported on on May 26th.
With a number of other factors suggesting that gold’s fundamentals are likely to remain in better shape this year than last when the market was dominated by huge outflows from the big gold ETFs, not to mention the ever continuing impact of geopolitical factors (like the latest Iraq insurgency) resurrecting safe haven demand from time to time, gold could be set fair for better things ahead. But then there remain negative factors out there too – not least suspected bullion bank market manipulation to protect their own positions – a factor highlighted by the recent Barclays fines over manipulation of the London Gold Fix to try and avoid a substantial payout which would have been incurred without this.
Gold investment is thus always fraught with uncertainties. Logic suggests that prices should strengthen, perhaps very strongly, but as the gold investor knows the price seldom seems to follow what might seem to be a logical progression (indeed its detractors would say the yellow metal’s position in the global financial system is itself totally illogical). As always, gold can provide an interesting, and sometimes perilous, ride for the investor.