Singapore Bullion Market Association

Website Sponsor

Article List

Article List

India’s Surge in Gold Imports: Optimism or Speculation?

By Srivatsava Ganapathy, CEO, Eventell Global Advisory

Published on April 10, 2021

Gold imports into India during March 2021 surged to 160 tonnes*, reaching US$8.4 billion. Between January and March 2021, the country imported 321 tonnes of gold against an import of 115.4 tonnes during the same period in 2020.

Gold imports into India since October 2020 have been on the rise, running up to U$27.7 billion, against a total gold import of US$34.5 billion during FY 2020-21. What are the reasons for the recent spike in gold import? Is it backed by demand revival for gold jewellery or is it a mere speculative build-up?

Low real interest rates

The Reserve Bank of India (RBI) has been following an accommodative monetary policy to facilitate economic growth. This is clear from observing the trends in some of the key rates. For instance, the repurchase rate (also called the repo rate, the rate at which a commercial bank borrows money from RBI against government securities), has been on the decline, from 8% in 2014 to 4% currently. Likewise, the reverse repo rate (the rate at which RBI borrows from banks) and the bank rate (the rate at which banks can borrow from RBI without security) have also been lowered to the current levels of 3.35% and 4.25% respectively. The yield on 10-year Indian government bonds (Chart 2) clearly captures the changes in repo and reverse repo rates. The yield on 10-year bonds touched a low of 5.78% in July 2020, before recovering to the current level of 6.16%. Yields on other Indian government bonds have also fallen.

Demand for physical assets

While inflation based on wholesale price index (WPI) has been kept well under control at less than 2% in recent times (notwithstanding a spike to 4.7% in January 2021), the retail price based inflation numbers have been volatile, moving between 7.5% and 5% during 2020. As a result, real interest rates in India, based on retail inflation rates, were very low for most of 2020. Investors moved away from traditional financial assets such as fixed deposits to physical assets, mainly gold. A steep increase in subscriptions to sovereign gold bonds, assets under management of gold exchange-traded funds, and digital gold during 2020 are proofs of the trend.

Customs Duty Cut

The industry was pleasantly surprised when customs duty on precious metals (both bullion bars and dore) was reduced on February 1, 2021. Accordingly, the effective import duty on gold, silver, platinum and palladium bullion bars was reduced from 12.875% (basic customs duty/BCD of 12.5% + higher education cess/SWS of 3% on BCD) to 10.75% (7.5% BCD + 10% SWS on BCD + 2.5% Agricultural Infrastructure Development Cess/AIDC) of the assessable value. In order to maintain the differential between standard bullion and dore, the customs duty for gold dore bar and silver dore bar was cut to 6.9% from 11.85% and to 6.1% from 11% respectively. It is widely believed that lower import duties will make illegal imports less attractive and promote organised business.

Gold Import Boost

Between February 1 and March 31, 2021 global gold prices slid by 8.2%. Thanks to the stable currency, the price of gold in Indian rupee terms too fell by the same share during the same period. Lower prices accelerated gold imports during the period.

Why is India importing gold now?

India is one of the largest markets for gold jewellery. World Gold Council, India estimates that 55% of the country’s gold jewellery demand is driven by marriage-related purchases. While marriages are held throughout the year, their number increases steeply during certain periods. For the current year, the first marriage season starts in mid-April, and will last for about two-and-a-half months. As such, the upcoming marriage season and the likely increase in marriage-related gold jewellery purchases is one of the reasons for the increase in gold imports.

Second, Akshaya Tritiya is considered as an auspicious occasion for purchasing or gifting gold. The festival, slated for mid-May 2021, is expected to provide another boost to the demand for gold jewellery. The festival is quite a significant demand driver – during pre-covid times, Akshaya Tritiya related gold jewellery sales reached up to 50 tonnes. Besides, the holy month of Ramadan is an important demand driver for gold jewellery.

Third, the conviction that gold is an enduring asset class and valuable is well-entrenched across India, especially among women. Gold and silver jewellery is the only asset that is widely owned by women in India. The sharp decline in gold prices from its peak of 56,000 rupees (US$753) per 10 g in August 2020 to the current level of around 44,000 rupees per 10 g is an excellent opportunity for the public to convert a part of their savings to gold/silver jewellery purchases.

In summary, imports of gold have risen in anticipation of expected increase in marriage-related demand and festival-related purchases of gold jewellery, as well as the decline in the price of gold.

Chart 1: India’s gold import (USD billion) in FY2021

Potential risks

Covid-19 is the most visible risk to gold demand as cases surge across the country, particularly if restrictions on social gathering and non-essential gatherings are reintroduced. Should the second wave of Covid-19 escalate, it could lead to a delay in economic recovery, which in turn would lead to a loss of income. As highlighted by the World Gold Council, demand for gold in India is mainly driven by growth in incomes. So, for demand of gold to grow and sustain, income growth is a pre-requisite.

Policy change is always a risk in the Indian context. Although the current account balance of the government is comfortable at present, a sharp reversal to current account deficit might force the government to review its policies. However, the probability of such an event in the near-term is low.

Chart-2: Government of India 10-year bond yield: Bottomed out?

Summary

A combination of favourable factors – low real interest rates, falling gold prices and a drop in customs duty – has led to an increase in gold imports since October 2020. The annual marriage and festival season is also expected to drive demand for the previous metal. A second wave of Covid-19 is a serious risk, even as the country is accelerating its vaccination drive and hoping to control its spread. The coming two quarters are going to be crucial for the recovery of the Indian economy. Gold’s fortune is closely linked to the growth of Indian economy as bulk of the demand for gold jewellery is linked to income growth. If one assumes stable gold prices and acceleration in economic growth, then one should see continued growth in gold demand doing forward.

*
The gold import figure of 160 tonnes includes about 50 tonnes imported and held by foreign suppliers at the Free Trade Zone Warehouses.

SRIVATSAVA GANAPATHY (VATSA) is the CEO of Eventell Global Advisory, which creates industry platforms (physical, digital and hybrid versions) for the commodity sector through path-breaking conferences and industry-relevant research and insights. Eventell provides insights on the global bullion market and industry through its web portal, www.bullionworld.in, and a monthly magazine of the same name.

PREV ARTICLE
NEXT ARTICLE
BACK TO INDEX

SECRETARIAT SBMA-Emily-Oh

Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

SECRETARIAT SBMA Clara-Chang

Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

SBMA Committee-Photo-john-levin

Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

SBMA Secretariat-Fabian-Lew

Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

SBMA-margare-secretariat

Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

SBMA-Albert-secretariat

Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

SBMA-Shaokai-Fan

Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

SBMA-Committee-Alan-Liew

Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

SBMA-Committee-Nikos

Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

SBMA-Committee-khun nuttapong

Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

SBMA Committee-Photo-Raman-Walia

Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

SBMA Committee-Photo-Andrew-Clarke

Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

SBMA Committee-Photo-Kazuya-Naoki

Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

SBMA Committee-Photo-Vinh-Nguyen

Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

SBMA Committee-KL-Yap

Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.