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India Becomes Bright Spot For Gold Demand In 3Q – WGC

By Debbie Carlson of Kitco News
Thursday November 13, 2014 12:01 AM

(Kitco News) - Indian purchases were a bright spot in third-quarter gold demand, as jewelry buying during Diwali and demand for medals/imitation coins led to a 39% increase in the country’s gold demand versus a year ago, the World Gold Council said Thursday.

India’s jewelry demand more than offset a drop in total bar and coin demand during the third quarter, and its jewelry purchases meant India was one of the few countries to see gold demand rise over 2013’s third quarter and the only major gold-consuming country to see a double-digit gain during the timeframe measured.

In the third quarter, India’s gold demand was 182.9 metric tons, up from 114.5 tons in the third quarter of 2013. Total bar and coin investment in the third quarter was 42.2 tons, down from 2013’s 47.1 tons.

Marcus Grubb, managing director, investment at the World Gold Council, said a few factors were at work to push up Indian demand.

First was the election of new Prime Minister Narendra Modi, who is ushering in new economic growth policies. Second, the Reserve Bank of India relaxed some of its gold-import restrictions, Grubb said.

While other import restrictions remain in place, he said to some extent Indian citizens have adjusted to these restrictions.

“The initial sticker shock happens when the price rises or there’s a tariff increase. But eventually the dealer community adjusts in terms of wholesale premiums, and then the consumer adjusts in terms of demand, where the price point is, especially for gold jewelry,” Grubb said.

India’s gold demand fell sharply last year when the import quotas and tariffs were enacted. While India’s gold demand looks particularly strong compared to last year at this time, India’s demand was the second-highest third quarter on record, bested only by 2008’s third quarter, the WGC said. For the 12 months ended in the third quarter, India’s jewelry demand was up 3%, although total demand was down 18% because of a 49% drop in bar and coin investment.

During the third quarter, investment demand in India fell by 10%, but there was a 53% rise in manufacturing of medals and imitation coins.

“The medals are a result of the (import) controls. You’re not seeing the imported foreign coins; there was a switch to domestic refining of medallions. They’re not minted coins but they are a big market in India. It had a significant impact on global bar and coin demand this time around as well,” Grubb said.

The WGC is forecasting continued seasonally strong fourth-quarter demand for Indian gold. Not only is there the economic improvement in India, but the recent fall in prices is also enticing. Local premiums have come down and gold prices in rupees is around INR24,000 to INR23,500, down from INR27,000 recently, Grubb said.

“That is perceived as cheap by Indian consumer, which is why you see a rise in gold imports,” he said.

The WGC upwardly revised its Indian gold demand estimate to 850 to 950 tons for 2014, and estimates that about 50 tons a quarter is smuggled in.

Meanwhile, the WGC downwardly revised its forecast for Chinese demand to 850 to 950 tons, essentially estimating the same amount of demand for both gold-loving nations. Year-to-date Chinese demand is 56 tons greater than India’s, he said. Last year China took the crown from India as the top global gold consumer. It’s up in the air who might be the No. 1 importer for 2014

“The bottom line is it is a foot race for the fourth quarter. Clearly you have Diwali, which is showing strongly in India right now. But you are going to see stocking for Chinese New Year before the end of the year. It’s a close thing... (but) China’s in the lead,” he said.

Grubb also acknowledged China also sees more back channel gold demand, too.

“For years we’ve seen there’s more gold going into China than has been accounted for through measured demand. And I expect this year to be no different. That would give China a boost basically,” he said.

U.S. Jewelry Demand Grows

As has been the case for the past several quarters, U.S. jewelry demand grew in the third quarter, up 4% from the third quarter of 2013 and up 12% for the 12 months ended in the third quarter. This quarter’s jewelry demand was enough to offset a fall in total bar and coin demand to register a 3% rise in year-over-year demand.

Comparatively, coin and bar investment for the past four quarters is down 30% and total demand is down 4%.

Grubb said the jewelry demand gains are a sign of the improving U.S. economy.

“What you’ve got is a situation of the improved economy in the U.S. is feeding into consumer demand and improved jewelry demand. And the non-wedding market in the U.S. is linked to consumer confidence,” he said.

While investment demand is more volatile since it can be affected by price or geopolitical concerns, Grubb said the rising trend in jewelry demand is solid.

“The jewelry trend is the strong trend…. Those who are bullish on equity markets have to bet that eventually this recovery broadens and deepens in the population, away from just the stock market and just those who have investment in property… It’s got to be broader and deeper to get wage growth increasing ... for consumption to pick up. We’re starting to see that in jewelry. It’s the longer-term improvement in the economy that is feeding through to jewelry purchases,” Grubb said.

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By Debbie Carlson of Kitco News; dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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