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Guest Post: Will India Stop Buying Gold?

Tyler Durden's picture




 

Submitted by Jeff Clarke from Casey Research

Will India Stop Buying Gold?

We've read mixed reports about how lofty gold and silver prices are affecting demand in India. One month we're told demand is up, and the next it's supposedly down. I'm not suggesting that official reports are inaccurate, but it is admittedly confusing and doesn't help us understand the real trend in the country.

Why should we care about the gold market in India? Well, let's face it; the nation is one of the biggest consumers of the metal, a major driver that can give us hints about demand and investment trends, along with what to perhaps eventually expect here in North America. But reading third-party reports about India is very different than getting information firsthand from a credible source in the country. I wanted to get to the bottom of what's really going on in India by talking to a reputable bullion dealer who could give me the inside scoop, an up-to-the-moment dispatch from the front lines, as it were. So I did just that.

Ashish and Rashmi Sand own Savio Jewellery (Savio means "shine" in Italian), a design studio and jewelry factory in Jaipur, India. They've received many design and manufacturing awards since starting their business six years ago, winning five awards in just the past six months. They source gold from bullion agents in Jaipur, who in turn obtain it from dealers in Hong Kong, Dubai, Mumbai, and Delhi. They have industry contacts, friends, and relatives that span the globe, from the US and UK to Asia and Australia. If anybody knows what's happening in the physical gold and silver bullion markets and the Indian jewelry market, it's them.

In this exclusive interview, you can read what Ashish and Rashmi told me about unstoppable demand, growing silver interest, budding demand for coins and bars, reduced selling, shifting trends with women, burgeoning ETFs, and why they believe a bubble is headed our way…

Jeff Clark: Ashish, tell us about your manufacturing facility and design studio.

Ashish: Savio Jewellery makes conceptual jewelry, which can be worn in five or six different ways. It looks "heavy" but is extremely lightweight. It's also affordable.

We design what you want, for as much as you want to spend. For instance, one of my customers wanted a necklace and earring set for her daughter's wedding; based on their budget, we were able to manufacture a set using 35 grams of gold [about 1.2 ounces].

Jeff: Do you have any difficulties sourcing metal?

Ashish: We don't face any difficulties in arranging gold, whether demand is high or low, because the traders hedge gold on daily basis. We also keep a reserve of gold so that our manufacturing doesn't slow down if metal isn't immediately available. Our suppliers of gold don't face any problem procuring gold, either.

Jeff: How would you describe demand for gold right now in India?

Ashish: We are seeing several shifts in the trends for gold demand. First, even with the increase in price, demand is still strong. People have not stopped buying. Part of this is cultural; wearing gold jewelry in a wedding is a longstanding custom in India and will not change regardless of price.

In fact, our shops are experiencing increased buying in spite of higher prices. Previously we would have one or two customers per day for gold, but now we have five or six. We are getting plenty of new customers, and see new customers more frequently now.

Second, I would say that awareness among customers has increased. Now they see jewelry also as an investment and want a proper return on their investment. Further, due to fluctuations in price, they may book in advance – i.e., if a customer orders a jewelry product, they lock in the gold price ahead of time.

Probably the biggest change we face, though, is that customers are more focused on getting lightweight jewelry, or 14-carat gold instead of 18-carat gold. This is due to the high gold price. This adjustment, however, has not affected the desire to own gold.

The bottom line is that the rise in the gold price has not hampered demand.

Jeff: Are Indians investing more in bullion (bars and coins) than usual?

Ashish: Indians are definitely investing more in bullion due to the rising trend in gold and silver prices. Investing in gold and silver has always been a good idea for wealth protection to Indians, and now we are seeing them buy more coins and bars than they used to. Coins and bars are mainly purchased either in wedding season or during the Diwali festival. Even I purchase gold coins every Diwali – 10 grams, 20 grams, or any amount.

Another factor is that India has experienced many monsoons over the last two years, and the farmers are tending to invest their savings in gold and silver. This is a major factor for the increase in demand for coins and bars.

Jeff: Is much reselling taking place right now? Is it higher or lower than it used to be?

Ashish: Reselling gold has become rare – and this from a country that consumes more gold than any other and where gold jewelry is a central part of the culture. We rarely have customers who sell back their gold or silver. Before we used to have customers who would sell their scrap gold and make new jewelry from it, but now we don't experience many such customers. I would estimate we currently have 90% buyers and 10% sellers, and before the ratio was 80% buyers and 20% sellers.

They're not selling, because they hope that in the next few years the price will rise further and they can get better returns than what they can at present. Just a few years ago, some customers would buy gold expecting to sell when the price rose; now those customers are sure gold will keep rising year after year and are selling only rarely.

Jeff: We've read about an increased interest in silver in India – tell us what you see.

Ashish: Silver demand has increased sharply in recent years, as increasing numbers of investors use silver as a store of value. Customers are also buying silver to hedge against market losses. While global markets have been uncertain over the past four years, silver has provided huge returns and has been an ideal investment. Because silver has provided the highest recent return of all the commodities, this has attracted the average layman.

Silver demand has also increased for the customer for whom the gold price is out of reach. Nowadays, if they cannot afford gold, they switch to silver. So the number of customers requesting silver has increased.

Silver is also part of gift-giving in India. It is customary to give silver items as a wedding gift, and there are rituals where parents gift silver dinner sets to their daughters at their weddings. In addition to dinner sets, silver is usually found in jewelry, such as a necklace, earring, bracelet, or rings; gift items such as glass sets and crafted boxes; and even showpiece furniture.

Last, there is a steep rise in demand for silver in electronic goods.

Jeff: Rashmi, describe how Indian women view gold. And have you noticed any changes in how they view silver?

Rashmi: Gold and silver are firmly embedded in cultural and religious traditions for Indian women. Over the past decade, Diwali and Akshaya Tritiya have become major gold- and silver-buying occasions in India. Gold and silver also play an important role in the marriage ceremony, where brides are often adorned from head to toe in gold jewelry. This reminds me of my own wedding.

[Rashmi is wearing approximately 500 grams of pure gold (about 17.6 ounces), including a necklace, earring, a tika and matha patti on her head, haath phool in her hands, bangles on her wrists, nose ring, arm band (bajubandh), and finger rings.]

So during wedding season, the demand for gold and silver increases. Our women customers prefer lightweight jewelry instead of heavy and bulky ornaments. Increasingly, it also appears they now prefer workmanship over weight when choosing jewelry made from gold. The Indian custom of women wearing jewelry has not changed, though they have started accepting 14 carat gold in order to make it more pocketbook friendly. And people in India wear jewelry to all kinds of parties.

We have also experienced an increased number of women customers in our shop. They still buy gold and silver jewelry, but now they prefer jewelry that is of designer quality and looks good. This is the biggest change I have noticed with women over the past few years; they want jewelry that is unique. They prefer wearing long earrings – danglers or hoops.

They also prefer multipurpose or conceptual jewelry – in other words, jewelry that can be worn in different ways. This attracts the woman customer, as they think they have more jewelry for the same price.

There is a different culture in south India, where the people are more bound to gold jewelry than silver. The parents still focus on giving gold to their daughters for a wedding present. Each part of India has different customs, but the one thing that remains common is that gold jewelry is bought by everyone for weddings.

Jeff: Ashish, you've stated you are very bullish on the price of gold and silver, and that a bubble for prices is ahead; why?

Ashish: To be clear, we are extremely bullish on the price of silver and gold. We believe that both will eventually advance into a full-fledged bubble that will surpass most investors' wildest dreams.

The world is changing and so is the way we invest. Gold and silver were once considered a marginal investment, worn mostly as jewelry or something that was stored in banks. Now it is making a comeback and has become a primary investment asset for many individuals and institutions.

In India, people are very futuristic and are so bound to the culture that they're buying gold and silver in advance. If they know that they are going to marry their daughter in three to four years, for example, they will purchase the gold now instead of waiting when prices will be higher. This will continue to underpin demand and push the price higher.

Jeff: Any other trends you see in India?

Ashish: From the average layman to the high-class educated person, they now want to invest in gold and silver. In fact, those who were investing in equities have been switching to gold and silver. Even the gold and silver ETF has become common in India. This is partly due to rising prices; keeping metal at home has become riskier, so they can avoid the risks of self-storage by using an ETF.

Even I have invested in gold and silver for my personal use apart from my business. Instead of buying equities, I now invest more in gold and silver, with the expectation of getting a good return.

I will conclude by just saying that based on what we see here every day, we believe gold and silver prices will continue to go up.

Jeff: Thanks, Ashish and Rashmi.

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Fri, 03/30/2012 - 20:14 | 2305328 Xibalba
Xibalba's picture

Tungsten for dowry?  

Fri, 03/30/2012 - 20:25 | 2305350 Quinvarius
Quinvarius's picture

Somehow I think he would have noticed that he was making jewelry out of tungsten within the first couple seconds of trying to shape it.

Sat, 03/31/2012 - 08:30 | 2306066 GetZeeGold
GetZeeGold's picture

 

 

Let's see....1.5 quadrillion in global market-cap.

 

divided by the total available supply of gold.

 

Thus we surmise that gold at $1669......is dirt freakin cheap.

 

Please don't tell anyone because I'm not done accumulating.

 

 

Sat, 03/31/2012 - 14:22 | 2306552 Born-Again Bankster
Born-Again Bankster's picture

I'd like to see one of those chart porn graphs taking into account annual global consumption of gold and silver as a percent of worldwide population and calculating the projected population expansion over the next 25 years to see what would happen to values if the consumption percentage remained constant.  Anyone have links to something similar?  

Sat, 03/31/2012 - 19:59 | 2306972 Oracle of Kypseli
Oracle of Kypseli's picture

Gold value remains the same. The fiat currencies make it look expensive. But a direct answer to you calculations will be gold price to infinity.

The rule of thumb, is:

  1. 100oz of gold will always buy you a nice house in a western country.
  2. or 5 houses elsewhere.
  3. 1oz will get you and Armani suit or a Galanos evening gown.
  4. 150oz of gold will buy you a nice 50 foot ocean going sailboat.

Once the reset kicks in all the above, could be had for 50-65% less

Enjoy the loot

Sun, 04/01/2012 - 18:43 | 2308229 across the rubicon
across the rubicon's picture

I am an Indian. 

There is no Silver ETF in India. (thats an error on mr jeweller's part)

No, Precious Metals havnt become the investment of choice for Indian's just yet. 

Most of the prospective investors I speak to here, are unanimously of the opinion that prices are already wayy too high.

Conclusion:

* there is still a lot of skepticism amongst the people who are the largest buyers of gold in the world.

* hence, this bull market still has a long way to go.

Fri, 03/30/2012 - 20:26 | 2305353 urbanelf
urbanelf's picture

It's not like Khazakstan where you just give the father 10 gallons of insecticide in exchange for his daughter.

Sat, 03/31/2012 - 01:58 | 2305845 dark pools of soros
dark pools of soros's picture

was that Khazakstan on Kardashistan?

Sat, 03/31/2012 - 08:16 | 2306051 GOSPLAN HERO
GOSPLAN HERO's picture

Kardashistan women have been soiled by Hamite men.

These women have no trade value.

 

Sat, 03/31/2012 - 08:56 | 2306090 thatthingcanfly
thatthingcanfly's picture

Bold.

Sat, 03/31/2012 - 09:58 | 2306149 oddjob
oddjob's picture

I'm sure a whaling ship would harvest them.

Fri, 03/30/2012 - 21:17 | 2305438 ACP
ACP's picture

Hey dollars can still be used for weddings and other celebrations...everyone needs confetti!

Sat, 03/31/2012 - 04:27 | 2305932 Bubble
Bubble's picture

Barmitsvah confetti

Sat, 03/31/2012 - 06:51 | 2305992 The Alarmist
The Alarmist's picture

Dollars won't be very welcome after the Obama administration starts cutting Indian banks out of the global banking system as retaliation for their continued trade with Iran.

Sat, 03/31/2012 - 09:21 | 2306108 Bobbyrib
Bobbyrib's picture

That was bound to happen anyway. We give and take (visas) through free trade while all the while India mainly just takes the most of the benefits of "free trade."

Sat, 03/31/2012 - 14:54 | 2306616 Amagnonx
Amagnonx's picture

Between India, Russia and China - which are all interconnected - why would they care.  They don't really need the rest of the world - if they got cut off, there would be some short term pain - but it would pass quickly enough.

One thing they do need though, are sources of oil - so Iran is necessary for them all, and in the long term so is Afhganistan and the rest of the central orient oil.

Sat, 03/31/2012 - 19:57 | 2306983 Oracle of Kypseli
Oracle of Kypseli's picture

They need Americans to buy their stuff. Wear them two times and buy more. As George Carlin puts it, everyone else's stuff is shit and all your shit is stuff.

http://www.youtube.com/watch?v=MvgN5gCuLac

 

Fri, 03/30/2012 - 23:44 | 2305646 stockoptimistic
stockoptimistic's picture

This article fails to mention one of the latest trends in India - Gold backed loans. Previously, it was considered against one pride to keep family gold assests to acquire loans. Now we have profileration of many companies who give out loans in lieu of gold.

Sat, 03/31/2012 - 00:36 | 2305761 Oh regional Indian
Oh regional Indian's picture

Bingo. This Savio gentleman is simply talking his dream scenario.

Glod Loan Companies are THE gold story in India right now.

ori

Sat, 03/31/2012 - 04:29 | 2305933 _Alekhine_
_Alekhine_'s picture

The government of India recently passed a law that would cap the value of loans given on gold to 60% of the value of gold.

 

The Indian government, like all other governments, has been living beyond its means and wants to spread its inflation across as many people as possible. It's starting to see gold as a threat. Hence the increase in import duty on gold. 

 

Fortunately, gold has cultural and religious significance in India, ensuring that no government can come close to confiscating it.

Sat, 03/31/2012 - 09:29 | 2306117 Bobbyrib
Bobbyrib's picture

I would argue the import duty has more to do with India's protectionist policies than the government seeing is as a threat.

Sat, 03/31/2012 - 20:02 | 2306988 Doña K
Doña K's picture

By confiscate you mean steal. Correct?

Sun, 04/01/2012 - 09:32 | 2307475 Marco
Marco's picture

The Indian population has been living beyond it's means ... their government is certainly corrupt, but government alone can not sustain the kind of trade deficit India has.

Sat, 03/31/2012 - 15:27 | 2306671 mkkby
mkkby's picture

Did you all catch the lie?  First he said there was no reduction in demand.  Then the next sentence he said people were switching from 24 karat to 14.  The whole article is BS.  No info here on demand.  It is probably falling, but who knows?

Sat, 03/31/2012 - 20:07 | 2306995 Doña K
Doña K's picture

Dowries are just like any other traded asset. They go up and they go down depending on the economic condtions and the balance between the earning potential of the groom vs. the looks of the bride.

Fri, 03/30/2012 - 20:16 | 2305333 Buckaroo Banzai
Buckaroo Banzai's picture

Rupee-cost averaging, baby!

Besides, what the hell else are they gonna do with their worthless fiat.

Fri, 03/30/2012 - 20:19 | 2305340 Vic Vinegar
Vic Vinegar's picture

Ashish: Even the gold and silver ETF has become common in India.

I guess they're not reading http://fofoa.blogspot.com/ over there. 

Sat, 03/31/2012 - 08:27 | 2306061 FinkPloyd
FinkPloyd's picture

Firstly there are no silver ETFs in india. There is only one silver fund (Milestone Bullion Series  - not listed on exchanges), which uses a combination of  futures and physical silver.

One good thing about the Gold ETFs in India , is they are all fully allocated. None of that partially allocated nonsense. That said like all ETFs it's paper gold, with insurance on the physical bullion, and subject to the usual counterparty risk and possibly government confistcation at some point.

Of course the other downside to holding physical, is the indian govt. charges 1% wealth tax on all physical gold over value of 15 lakh rupees (~ USD 30000). 

Sat, 03/31/2012 - 11:46 | 2306259 Quinvarius
Quinvarius's picture

Which is another reason gold will continue to disappear into unreported holes.  All government gold actions cause gold to leave the system into hoards.  Anything the governmnet does will have the exact opposite effect as intended over the med to longer term.

Take all this oil intervention.  It puts producers out of business, causes scarcity, and increases consumption exactly when the opposite should be happening.  So you have several waves of force that are building up under the price.  Then the government intervenes again and the forces get multiplied.  It is like double jumping someone on a trampoline.  The forces either blow the top off (oil prices), or the trampoline (economy) collapses, or both.

The same effect has been going on with gold and silver for 30 years.

Fri, 03/30/2012 - 20:23 | 2305346 disabledvet
disabledvet's picture

When humans stop digging for it i guess.

Fri, 03/30/2012 - 20:25 | 2305349 goldenmiddlefinger
goldenmiddlefinger's picture

Indians N-E-V-E-R stop buying gold.....never!

They have not stopped buying gold for the last 3500 years.....They are not about to start now.

Fri, 03/30/2012 - 22:47 | 2305480 DoChenRollingBearing
DoChenRollingBearing's picture

Then they have the same sense of the marginal utility of gold that many of us in the West do!

"Marginal Utility and Gold" at my blog, gmail me or Google it.

Sat, 03/31/2012 - 12:34 | 2306371 redpill
redpill's picture

Get off gmail

Fri, 03/30/2012 - 20:29 | 2305364 bbq on whitehou...
bbq on whitehouse lawn's picture

Indians will stop buying gold when americans stop washing their cars or buying them.

Gold is not gold in india. its success, devotion and obligation.

If you gave 200 grams of gold to your oldest daughter, would you feel better or worse giving 50 grams to your youngest.

There is so much guilt tied up with gold in many famlies that it may not be possable to discribe.

In Asia obligations mean EVERYTHING.

I

Fri, 03/30/2012 - 20:51 | 2305395 disabledvet
disabledvet's picture

American obligation:
http://www.youtube.com/watch?feature=player_detailpage&v=ciez9G4cADE
not bad if your interest is purely purile...

Sat, 03/31/2012 - 15:14 | 2306652 DosZap
DosZap's picture

bbq on whitehou...

In Asia obligations mean EVERYTHING.

Here to, until about 15 yrs ago.

They still have their cultures,values, and more intact,while here it is changing for the worse day by day, thanks to free(taxpayer funded) gub handouts.

Fri, 03/30/2012 - 20:37 | 2305372 goldenmiddlefinger
goldenmiddlefinger's picture

Though I am skeptical of the author's choice of the people he chose to interview. The fake 14 carat bullshit is what Indians do NOT give a crap about. Try selling 14 carats anywhere in the South as something awesome....you might get lynched. The maximum they might be willing to settle is for 22 carats. That too since it is better for jewellery than the soft 24 carats. This lightweight jewellery bullshit is probably sought by <1% of Indian women. That is a fact!

Fri, 03/30/2012 - 21:11 | 2305427 Monedas
Monedas's picture

He might be trying to make buying 14k more trendy or acceptable.....because there is more profit in it and it's more affordable !  Wishful thinking ?   14k is barely 58% (?) gold by weight and less than 50% gold by volume....unless you're alloying it with Pt ! 10k gold shouldn't even be call gold....it should be called 14k copper !   Monedas  2012    Comedy Ganges Funeral Barge Tour

Fri, 03/30/2012 - 23:05 | 2305536 sun tzu
sun tzu's picture

Most East Asians prefer 18k gold. Only Westerners use cheap 14k gold jewelry

Fri, 03/30/2012 - 23:32 | 2305609 whatsinaname
whatsinaname's picture

Wrong! In India it could be no less than 22 or 24 karat...

14 is an abomination.

Sat, 03/31/2012 - 02:32 | 2305879 JOYFUL
JOYFUL's picture

double wong!

As the purchasing power of the average Indian is submerged in a tidal wave of inflation and impending real estate bubbles, the response is to hang on to tradition by buying gold, but changing preference to those more in line with North America's choice of 14 kt jewelry...same phenomena happening in all the gold-hungry states of Asia:

The[Turkish] market is broadly characterised by two contrasting features: sales to the local population which traditionally takes 22 carat 'investment' jewellery and sales to tourists who take 14 carat. However, for some years now, there has been a marked shift amongst the local population, in particular in the cities, away from 22 carat to more fancy, higher mark-up 14 carat articles. Even in the rural areas, the traditional bastion of the 22 carat investment bangle, the consumer is moving to 18 or even 14 carat.

Kartel banking is the abomination...14 k is merely the response.

Sat, 03/31/2012 - 06:00 | 2305964 Sudden Debt
Sudden Debt's picture

Whatever, our average wedding rings are 1/10 ounce of gold. And maybe the average person has 2/10 ounce of gold in possesion.

Sat, 03/31/2012 - 06:40 | 2305982 Moe Howard
Moe Howard's picture

I guess we are not average Sudden Debt.

Sat, 03/31/2012 - 09:31 | 2306122 Bobbyrib
Bobbyrib's picture

No offense, but are you just starting to figure that out now?

Sat, 03/31/2012 - 15:01 | 2306624 Amagnonx
Amagnonx's picture

I'm in SE asia - gold is 23k-24k, sales for anything less are virtually zero.  Silver and gold are easily available here, high purity - no paperwork, prices at spot +1-3%.

 

I find the 14k idea hard to swallow - that wouldn't sell in this country or in any of the neighboring countries.

Sat, 03/31/2012 - 15:27 | 2306676 DosZap
DosZap's picture

Only Westerners use cheap 14k gold jewelry

Yep, and another reason Western women do not use 18-22-24k, is cost, and they have never been culturally married to the idea of Gold.

And 90% do not wear a tenth as much because they consider it gaudy,and whorish..................its a PURELY cultural customs thing.

Perhaps it would be more widely worn, if it was not considered over dressed, and some biatch did not slit their throats for it.Our women could never walk the streets here loaded up with heavy Au jewelry,their life expactancy would drop off a cliff.

Plus, they have been brainwashed thinking fiat is money..................having never used PM's for money.

Sat, 03/31/2012 - 15:18 | 2306656 DosZap
DosZap's picture

goldenmiddlefinger

Try selling 14 carats anywhere in the South as something awesome....you might get lynched.

Yup, I suspect those buying 14, are single women,and just want the appearance of BLING.

Anything lower than 18k-22k, is/was considered crap.

Sat, 03/31/2012 - 20:25 | 2307024 Doña K
Doña K's picture

American women are into large cubic Zirconia. Another impostor. The reason is that the naked eye can not tell if it's a real diamond.

Best way to know if an American woman's diamonds are real is to check if she is chewing gum.

Sun, 04/01/2012 - 05:56 | 2307363 The Alarmist
The Alarmist's picture

A trained naked eye can tell the difference.

BTW, does that rule of thumb also work for breasts?

Sun, 04/01/2012 - 09:41 | 2307487 Marco
Marco's picture

Of course with synthetic diamonds the eye becomes useless and you have to rely on spectroscopy and fluoroscopy ... although why the hell care at that point? Not like diamonds were ever a sound investment to begin with.

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