There is no place that gold seems to be more at home than India.
Although it just barely slipped behind China as the world's #1 consumer of gold in 2014, India is the perennial global leader in gold demand and gold imports. In many ways, the Indians have a religious affinity for gold; when it comes to important celebrations, like a traditional wedding or the Diwali Festival during the autumn, the only gift that will do is gold.
Although purchases of gold have subdued in India so far this year, at least relatively so, the approaching "gold season" of auspicious holidays is invariably a huge buying event.
Buying on the Dips
Although gold sales have yet to lift off this year in the world's second-most populous country, it seems that Indian citizens are merely biding their time. Jewelers have been preparing for the onslaught of gold buying that always accompanies the onset of fall, the traditional season for auspicious investments, gift-giving, and therefore weddings. Many suppliers are stocking up on gold jewelry with the knowledge that this year's gold purchases may be even greater than usual with the lowest metal prices in about 6 years. Spot gold sat just below $1,120/oz on Monday, while the momentous five-day Diwali Festival falls on November 11 this year.
Government Curbs on Gold Imports
Despite the incredible level of veneration that gold receives in India, the country's government has been forced to take drastic measures in order to keep its trade deficit down. The massive importation of gold into India each year, in the neighborhood of 1,000 metric tonnes annually, eats into the country's current account balance due to the high value of gold being imported. In fact, the only resource that India imports more of than gold is petroleum.
While a fantastic amount of gold flows into India each year, not much of it ever leaves the South Asian subcontinent. Indian families hold untold amounts of gold for the purposes of passing on to their children, often through gifts of jewelry on birthdays, weddings, and holidays. In order to address this problem, the government of Prime Minister Modi implemented an "80:20" rule, which stipulated that 20% of the gold imported into the country had to be re-exported, helping cut down the impact on the trade deficit.
In addition, the government recently announced an increase to the tariffs on precious metal imports, increasing these trade-barrier taxes to $363 for every 10 grams of silver imported and $499 for every kilogram of gold that reaches its shores, according to India's Economic Times. Like all tariffs, the measure is used in the hopes that it deters gold imports and instead forces gold buyers to rely on domestic sources. The main problem is that very few are selling their gold, though Indian jewelers are exploring options for greatly improving the country's gold refining capacity, especially in the rural northern region.
No matter the government's attempts to slow down the influx of gold into India, the yellow metal continues to make it into the country, even if it has to be smuggled in through someone's stomach or by a shadowy North Korean diplomat. Each time the government issues another barrier to gold ownership or import, smuggling of gold into India multiplies (and becomes more crafty). There seems to be little the government can do in this regard; perhaps a more sensible policy would be to tax gold purchases up to the eyes, though sellers in India already mark-up their gold products with among the highest premiums found anywhere in the world.
In any event, it is hardly a bold prediction to say that a great deal of gold will be bought in the weeks leading up to the festive five-day celebration known as Diwali. The Hindu goddess Lakshmi, who embodies wealth, fortune, and prosperity, is honored as part of the event, making gold a fitting way to commemorate the auspicious time.