Compared to this time last year, India’s gold purchases were up 39% with jewelry booming during Diwali. The jewelry demand nearly offset India’s drop in bar and coin purchases during the third quarter. 
Thanks to jewelry purchases, India was one of the few countries to see gold demand rise and the only country to record double-digit gains during the measuring timeframe. India’s gold demand was 182.9 metric tons, up from 114.5 metric tons seen in the third quarter of 2013. In contrast, bar and coin investment totals were 42.2 tons, substantially lower than 2013’s 47.1 ton mark.
A few factors for the push in Indian demand were noted by Marcus Grubb, Managing Director of Investments at the World Gold Council. Most notably, the election of new Prime Minister Narendra Modi, who is leading the push for new economic growth policies. Secondly, restrictions on gold-imports were relaxed by the Reserve Bank of India.
“The initial sticker shock happens when the price rises or there’s a tariff increase. But eventually the dealer community adjusts in terms of wholesale premiums, and then the consumer adjusts in terms of demand where the price point is, especially for gold jewelry,” Grubb said.
India demand for gold fell dramatically when import quotas and tariffs were enacted last year. This year, India’s demand was the second-highest third quarter on record, bested by 2008’s third quarter mark. On the year ending the third quarter, India jewelry demand was up 3% even though total demand was down 18%. The 18% low was due to a 49% drop in coin and bar investment. However, even with a 10% third-quarter drop in investment demand, there was a 53% rise in imitation coins and manufacturing of metals.
“The medals are a result of the (import) controls. You’re not seeing the imported foreign coins; there was a switch to domestic refining of medallions. They’re not minted coins but they are a big market in India. It had a significant impact on global bar and coin demand this time around as well,” Grubb said.
Forecasts are pointing towards a strong fourth quarter demand for Indian gold. Economic improvement in India along with a drop in pricing is enticing buyers in the global market. Local premiums have come down and gold prices in rupees rounds out at INR24,000 to INR23,500, down from INR27,000.
“That is perceived as cheap by the Indian consumer, which is why you see a rise in gold imports. What you’ve got is a situation where the improved economy in the U.S. feeds consumer demand and improves jewelry demand…The jewelry trend is the strong trend…Those who are bullish on equity markets have to bet that eventually this recovery broadens and deepens in the population, away from just the stock market and just those who have investment in property… It’s got to be broader and deeper to get wage growth increasing … for consumption to pick up. We’re starting to see that in jewelry. It’s the longer-term improvement in the economy that is feeding through to jewelry purchases.”
─ Marcus Grubb, Managing Director of Investments, World Gold Council
