India ranks as the second-largest gold consuming country in the world, second only behind China. But over the last couple of years, the gold market in India has languished due to a combination of record-high gold prices in rupee terms and the economic impacts of the coronavirus pandemic. But there were signs of revival in the Indian gold market last month.
Gold imports into India recovered to 73.2 tons in December and hit a 19-month high, according to data released by the World Gold Council. That represented a 45% month-on-month increase and was 41% higher than December 2019.
Retail demand for gold was also up in December. Jewelry sales got a boost in the early part of the month, supported by wedding purchases and a stable gold price. With the onset of Kharmas, jewelry demand tapered off. But the dropoff in jewelry sales was offset by investment demand. According to the WGC, gold’s relatively lower price level to end the year was seen as a buying opportunity with higher gold prices anticipated over the long term.
There were net inflows of gold into Indian based ETFs totaling about 1 ton in December. Inflows into Indian gold ETFs nearly doubled in 2020, taking total holdings to 28.3 tons at the end of the year, compared to 14.8 tons at the end of 2019.
Meanwhile, the Reserve Bank of India added more gold to its holdings, increasing gold reserves by 3.7 tons in December. On the year, the RBI added 41.6 tons of gold to its hoard. Reports last summer indicated the RBI was considering significantly upping its gold holding from 6.5% to 10% of total reserves.
On the year, gold was up 28% in rupee terms.
A further recovery in the Indian gold market would further boost global demand and would be supportive of gold prices.
Gold has helped Indians weather the economic storm caused by the coronavirus pandemic. The government response to COVID-19 ravaged the Indian economy. As a result, many banks were reluctant to extend credit due to fear of defaults. In this tight lending environment, many Indians used their stashes of gold to secure loans.
For many Indians, gold is a lifesaver, providing liquidity that they otherwise wouldn’t have.
Indians traditionally buy and hold gold. Collectively, Indian households own an estimated 25,000 tons of gold and that number may be higher given the large black market in the country. 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.
Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.
Indians understand that gold tends to store value, and that in the end, gold is money. If they have gold, they know they will be able to get the goods and services they need – even in the event of an economic meltdown. And while westerners may not embrace the cultural and religious aspects of the Indian love affair with gold, the economic reasons for their devotion to the yellow metal are every bit as applicable in places like the US.