Gold News

India's Central Bank Turns on Gold Buying "Obsession"

INDIA'S strong culture of Buying Gold is "an obsession" which must stop, according to the Reserve Bank's deputy governor.

Calling for a "social and cultural revolution" at a private event in Mumbai last weekend, K.C. Chakrabarty said that "90% of India's gold demand is jewelry or to offer to God.

"Both have to stop."

Last year saw Gold Buying by households in India – which has virtually no domestic mining production – top 969 tonnes according to market-development organization the World Gold Council, equal to some 2.6% of the country's annual economic output.

Long the world's #1 source of gold demand, Indian households buy today one ounce in every 5 sold worldwide, hoarding an estimated 16-20,000 tonnes all told, more than 10% of all the gold ever mined in history.

"The problem is that it has become a culture where the poor people are Buying Gold," says Chakrabarty, quoted by India Express and a raft of other news outlets.

"See the tragedy?" asks Chakrabarty. "For that [reason], unnecessarily our current account is suffering."

India's current account deficit jumped in fiscal year 2011-2012 to a 30-year high of 4.2%. The outflow of cash need to pay for the excess of imports over exports was widely blamed for the worse-than 20% drop in the Indian Rupee on the forex market.

However, the Indian Rupee has lost an average 5.3% of its value each year since 1980 versus the US Dollar.

Over that time, Buying Gold has delivered a positive gain for Indian households in 25 of those 32 years, returning an average 10.6% per year.

"Wearing gold as an ornament was a culture when you were a rich society, when you were contributing to 30% of the GDP of the world," Chakrabarty went on.

"Today, we have become a poor country, we need to change our culture."

Thanks to the Rupee's continued slide, prices for Buying Gold in India have held near all-time highs so far in 2012.

Coupled with a four-fold increase in bullion import duty – explicitly aimed at cutting inflows, as well as boosting India's domestic smelting and refinery industry – that has seen gold imports fall by 47% year-over-year according to the Commercial Intelligence & Statistics agency, totalling $9.47 billion by value in the Jan-June period.

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