Indian summer for gold and silver. Can it go on?
By: Lawrence Williams
According to the latest official figures out of India, gold and silver imports during November were enormous – right back to the kinds of levels seen when India, not China, was the world’s largest gold importer. Indeed real figures will have been even higher – particularly for gold. Although some import restrictions have been eased by the government (the withdrawal of the 80:20 rule whereby 20 percent of the volume of imported gold had to be re-exported) there will still have been a substantial amount of smuggled gold coming in to bypass the 10% import duty which is still in place. Indeed the official import figures had been rising very sharply before this restriction was lifted after dipping enormously early in the year to a fraction of previous level.
The official gold import figure for November is thus 148 tonnes – the highest level since May 2013 and back then traders had been stocking up ahead of the telegraphed 10% duty imposition. One can see the huge impact on Indian gold imports as a result of the government restrictions, imposed because gold imports were a huge factor in an unacceptable Indian Current Account Deficit, by checking out the chart published below which we have taken from Koos Jansen’s article on the latest Indian gold and silver import figures published on www.bullionstar.com. Do click on this link direct to the article to view Koos’s opinion on this and for the silver imports chart too – more of which later.
148 tonnes of gold is worth around US$5.7 billion at current prices so imports at this kind of level are very significant to a country already running a Current Account Deficit, which it has been trying to bring down to help arrest the fall in the value of the rupee.
Jansen puts official gold imports into the nation as running at 745 tonnes year to date suggesting a year end figure of 800 tonnes plus. But add to this smuggled gold. Some estimates of smuggled gold into the nation put this as high as 300-400 tonnes. The World Gold Council puts the figure at a more conservative 200 tonnes but India’s own Directorate of Revenue Intelligence is reported as estimating gold smuggling at 500kg a day with less than 1% being intercepted. This estimate was made in late 2013 and there are indications that the figure could be even higher in 2014. So the suggestion is that Indian gold imports (including smuggled gold) could be in the region of 1100 to 1200 tonnes this year – much on a par with Chinese imports which are probably a little higher. Jansen, again, puts the likely Chinese figure at around 1,300 tonnes plus this year. Chinese total demand (excluding possible Central Bank purchases) is seen as reaching over 2,000 tonnes with the balance made up from its own new mined production (around 430 tonnes) and scrap and recycling making up the balance. There is some argument as to whether there is, or is not, some double counting relating to recycled gold going through the Shanghai Gold Exchange, the source of the overall Chinese gold demand figures, but if so it may not be very significant with total scrap supply seen as being around 200 tonnes.
For the follower of gold fundamentals it thus appears that Chinese and Indian demand between them pretty well account for total global new mined gold supply on their own.
For India now the big questions are a) whether imports will continue at this kind of level and b) will the government revert and re introduce new gold import restrictions? This observer thinks the answer to both is no – at least for the moment.
The big October and November surges coincided with the major Indian festival of Diwali and the start of the festival season in earnest and the beginning of the Indian wedding season, all of which are heavily associated with gold gifting. This all starts to wind down after the year end and we should see a sharp fall in official imports in Q1 next year as trade returns to a more normal flow. If the Current Account Deficit is then seen as getting under control again there may not be a necessity to reintroduce additional restrictions – indeed there has always been an intimation since the election of the new Modi Government that even the 10% import duties might be reduced. The Reserve Bank of India would likely be against this but they would bow to the wishes of the Administration, as we saw when the 80:20 rule was dropped.
And what of silver? Although also subject to the 10% import duty Indian silver imports have also been huge, both for jewellery and for general industrial usage. Silver imports are largely ignored by the media but Koos Jansen, yet again, does much more research into such matters. He points out that India’s silver imports in November alone were an enormous 1,254 tonnes and total imports are headed to over 7,000 tonnes this year (6,789 tonnes so far). But unlike gold where Indian production nowadays is minimal, India does mine an important amount of silver, largely as a byproduct of its lead/zinc mining industry. Last year its new mined production was just over 370 tonnes, so adding this to this year’s likely silver imports suggests Indian 2014 consumption could be as much as 8,000 tonnes – or nearly one-third of global new mined silver output.
Recently analysts at HSBC suggested an 11 million ounce silver supply deficit next year, so as for gold silver fundamentals are beginning to look better and better – but whether these factors will impact positively on prices for either precious metal remains to be seen. Control still seems to be in the hands of players of the COMEX and LBMA futures markets.