Gold News

Love Gold? Love India

Any outlook for gold 2014 must include India's deep Diwali demand...
 
THOSE who root for gold root for India, writes Frank Holmes in his Frank Talk blog at US Global Investors.
 
Despite a welcome June rally, it's been a rocky second quarter for the world's second-largest consumer of the metal, with demand down 18% compared to last year.
 
But consumer appetite seems to be on the upswing following a tepid July. Gold premiums rose to between $10 and $13 a troy ounce this month, compared to zero last month. Such premiums are good indicators that buyers are willing to spend more on gold jewelry and other forms of bullion.
 
That premiums have risen also suggests that Indians are making their gold purchases ahead of Diwali, or the Festival of Lights, a traditional time to participate in what I call the Love Trade.
 
This year Diwali begins on October 23. Other global celebrations and events that trigger the Love Trade include the Indian wedding season, the Chinese New Year, Ramadan and, of course, Christmas.
 
 
Government policy and temperamental weather are mostly to blame for gold's less-than-satisfactory performance in India.
 
The recent election of Narendra Modi, who rules the pro-business Bharatiya Janata Party, had the global market hoping he would remove gold import duties. Unfortunately, the duty remained unchanged in the new government's July budget. It's my hope that the Modi administration will rethink this policy and ease the restrictions.
 
A slow start to the annual four-month monsoon season, beginning in June, also affected sales. Much of the country's gold demand comes from rural households, especially farmers, whose summer crops depend on monsoon rains. Rural Indian households typically devote between 7 and 8% of their income on gold, but disappointing crop yields have no doubt cost them earnings.
 
As it does in many other cultures, gold has a rich tradition in India, where people have been wearing gold jewelry for about 4,000 years. In ancient Hindu epics such as the Ramayana and the Mahabharata, gold is associated with godliness and kingliness, a sentiment millions of Indians still harbor to this day.
 
A 2012 World Gold Council survey, the results of which are shown below, stresses the high level of importance Indians place on the metal – as a financial asset, fashion accessory and cultural identifier.
 
 
The Rupee gold price might have risen 320% in the last 10 years, but because gold plays such a vital role in the country's heritage, appetite for the yellow metal remains robust.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

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