Indian households own almost one-tenth of all the gold ever mined in history...
EVERY MINUTE MOVEMENT in the Gold Price affects India, writes Nandita Jain for Commodity Online, as it constitutes the world's largest physical gold-market.
Globally, in the fourth quarter of 2008, total gold demand was up 84% in tonnage terms, led by a very strong 107% rise in jewelry demand, according to the World Gold Council's data, compiled on its behalf by the GFMS consultancy in London.
Sustained investor interest in gold over the course of 2008 came against a backdrop of the worst year on record for global stock markets and many other asset classes, helping to push demand for the safe haven asset up to $102 billion, a 29% increase from a year earlier.
Even now, with local Gold Prices touching 16,000 Rupees per 10 grams recently, India's gold consumers aren't willing to forego their purchases. Instead of going to branded jewelry showrooms, some of them may go instead to nearby, smaller dealers to fetch a better price both when they sell and when they buy. Still others are looking to exchange their old jewelry for new as well – a common practice.
"Loyalty had been the forte of small-time jewelers," says Ashok Minawala, chairman of the All India Gem and Jewelry Trade Federation, speaking to the Economic Times of India, "and a majority of customers from the lower, middle and upper classes are still dealing with them."
Jewelry sales have been affected for both small and large players following a meteoric rise in prices, coupled with the severe economic slowdown. High overheads, including monthly rentals and salaries, are adding to the woes of the big names in the business.
As a result, industry watchers say that many of the branded jewelers are going slow or even shelving their expansion plans. Households have been exchanging, rather than selling, existing jewelry for newer designs – and the outstanding supply which could be recycled in this way is enormous. Indian households are estimated to possess 15,000 tonnes of physical gold, almost one ounce in every ten ever mined in history.
Traders say that redemption of gold into cash now forms about 5% to 7% of their total transactions. "With bullion prices rising, Indians are becoming astute and willing to redeem their holdings or exchange," a trader said recently.
India's annual consumption of the yellow metal – the largest gold market in the world – is put at 800-850 tonnes, of which close to 150-200 tonnes is accounted for by recycled gold, classed as "scrap" in the global data collected for the World Gold Council. Thanks to sky-high prices, and a growing scrap supply, external bullion imports were virtually zero in February 2009. It's worth noting that India has virtually no domestic Gold Mining industry.
Back in 2007, gold buyers worldwide were attracted to the metal by the fast-falling US Dollar. The greenback also slid against the Rupee, and lower price volatility in gold also made it attractive to India's cautious accumulators. This was not the case in the last quarters of 2008, when the yellow metal was faced with huge daily swings.
India's gems and jewelry industry is one of the most competitive in the world thanks to its low cost of production and the wide availability of skilled labor. However, the economic slowdown has impacted the industry that has witnessed the export demand dwindle leading to many hundreds of thousands becoming jobless.
Worldwide, the gems and jewelry industry had been growing at a good pace and is currently estimated at $150 billion or more per year. In India, it accounts for nearly 20% of total national exports and employs nearly a million people directly and indirectly, according to an Associated Chambers of Commerce & Industry report, despite the fact that significant job losses have taken place in the recent past.
India's polishing industry has a worldwide distribution network, which has been established over a period of time. India has set up more than 3,000 offices worldwide for promotion and marketing of Indian diamonds. The Indian diamond industry has acquired leadership position in cutting and polishing of rough diamonds.
India has the world's largest cutting and polishing industry, employing around 800,000 people (some 94% of the industry's global workforce) with more than 500 hi-tech laser machines. The industry is well supported by government policies and the banking sector. Around 50 banks provide nearly $3 billion credit to Indian diamond industry.
Recently, commerce minister Kamal Nath announced a series of stimulus packages for the ailing diamond and gold processing industry. Surat in Gujarat, home to thousands of diamond units with hundreds of thousands of diamond workers, has been recognized as "Town of Export Excellence".
Now authorized people from the gems and jewelry units of export-oriented businesses shall be allowed personal carriage of gold overseas weighing up to 10 kg in each financial year. (That's still subject to Reserve Bank of India and customs guidelines, of course.)
The Indian gems and jewelry sector remains largely unorganized at present. There are over 15,000 players across the country in the gold processing industry, of which only about 80 players have a turnover of over $4.15 million or more. There are about 450,000 goldsmiths spread throughout the country.
Even today, most of the jewelry produced in India is hand made. The industry is dominated by family jewelers, who constitute nearly 96% of the market. Organized players such as Tata – with its Tanishq brand – have however been growing steadily, carving a 4% market share. As India's jewelry market matures, both for exports and domestic sales, it is expected to get more organized and the share of family jewelers is expected to decline.
Meantime, there was no gold imported during February in the absence of any local demand. Moreover, and again due to the current high Gold Prices, there is no fresh buying in the market as people are selling old jewelry to book profits, according to the Bombay Bullion Association.
But with property, stocks, mutual funds, government securities and bonds hardly offering attractive returns to investors due to the meltdown in the global economy, investments in gold and silver look set to continue growing, reaching Rs.17,000 per 10 grams on a prediction from Assocham.
India's gold imports may have temporarily stopped but it will surely return to previous levels as soon as present volatilities subside, the association believes.