Nic Colas On India's Temple Of Gold

Tyler Durden's picture

Via Nic Colas of ConvergEx,

Summary: India is known for its historically high per capita demand for gold, particularly before festivals and the wedding season, which peaks in the months of October to December. With more than ¼ of the entire global world market for the metal, the country has long been leading world demand, though fellow BRIC member China is catching up. But recent developments in India have gold bugs stirring – protests, boycotts, and a proposal for a tax on the sale on gold jewelry has severely dampened demand ahead of one of the most lucrative festivals in the country. And with global gold prices down more than 10% since their February high of $1,787.75, there seems to be good reason to worry about India’s role in the decline. But a longer-term analysis of Indian demand, global gold prices, and global GDP yield some surprising results about the country’s connection to the metal. While acceleration in gold prices and Indian GDP seem to link up as do Indian demand and global GDP growth, increases in demand have little correlation to gold price growth. Similarly, rampant inflation has almost no role in stifling demand for the metal. If these correlations hold true in 2012, gold investors might be able to sleep a little easier.

Gold trend-adjusted seasonal performance...

Note from ZH: We did a little seasonality check (chart above - black dotted line) and noted three things: 1) 2012 (orange) so far is looking a lot like 2009 (green) - which neared its trough around this period; 2) Trend adjusted, the period from late February to early June is a weak cycle (red arrow on regression channel) which is followed by a trend-adjusted upwards bias through the summer; and 3) Trend adjusted, the period from mid-October to early December is a very strong cycle

Note from Nic:  A recent article in The New Yorker about a surprising find in an ancient Indian temple got me thinking about gold, the subcontinent, and Charlie Munger’s recent comment that “Civilized people” don’t buy precious metals, but rather financial assets like stocks.  Gold has, in fact, been in a bit of a freefall of late, so I asked Sarah to pick up these disparate thoughts and see where they lead.  Her note, on Indian gold demand, follows here...

In the summer of 2011, while U.S. politicians were hotly debating the latest increase in the Federal debt ceiling, Indian authorities were facing quite the opposite situation: what to do with $22 billion worth of gold and rare jewels discovered under a temple in the southern state of Kerala. Rumors that the Sree Padmanabhaswamy temple sat on top of a horde of riches go back centuries, the result of millennia of donations to the gods, but the stories were only confirmed after a former Indian Police Service officer petitioned the Indian Supreme Court to order the opening of the temple to ensure “transparency in the running of the Trust” which overseas temple finances. The discovered wealth – which exceeds the annual education budget for the entire country – is now in limbo as two parties face off for ownership of the fortune. The Travancore Royal House, charged with the maintenance of the temple since the 18th century, assert that the riches belong to the gods they were offered to – and many Hindus in the region support their cause. Others think the wealth should be distributed to the poor; that $22 billion (and it could be far more once definitely valued) could potentially feed, clothe, and shelter every citizen of the region for years to come. The decision is ultimately up to the Indian Supreme Court, who have already stationed two dozen police officers around the temple for 24/7 surveillance. Just in case.

The $22 billion treasure found in Kerala is astounding, to say the least, but it represents barely half of the $46.4 billion Indians spent on gold in 2011. And while you may have read about Western central banks, Chinese citizens, and scores of other buyers for the yellow metal, India in fact outpaces every other country on the planet in gold consumption:

  • In 2011, India was the clear leader in global gold demand with 27.1% of the market, according to the World Gold Council’s statistics.
  • 61% of this spending went to jewelry, while 39% went to coins, bars, and other investments. This ratio has been converging for several years: in 2006 73% went to jewelry and 27% to other investments.
  • China has been slowly closing in on the lead, however, with 22.3% of the global gold market last year. 67% of this went to jewelry and 33% to other investments.
  • Gold ETFs got their start in India in 2007, and the seven such funds on offer to Indian citizens now have $1.9 billion in assets under management.
  • The next closest country in the ranks after India and China is the US, representing a much smaller 5.7% of global demand.

Clearly, India and China together are imperative to the global gold trade, as they account for almost half of all global demand.

In fact, as we show in the charts following above and below and the few data points below, the gold trade is a useful proxy for Indian economic growth, and demand from both of these countries is strongly connected to global GDP acceleration.

  • Annual Indian GDP acceleration or deceleration has a 0.4 inverse correlation with acceleration or deceleration in gold prices. In other words, when gold prices increase by a greater amount than the year before, it’s likely that Indian GDP will decelerate that same year. We’ve used the last six years as the baseline for this comparison, encompassing both the turmoil of the Financial Crisis in western economies and India’s volatile GDP growth rates of anywhere from 6-10% over the period in question.
  • China’s acceleration, on the other hand, is virtually unconnected to gold prices with a 0.03 R² over the same period. Clearly India is significantly more dependent on gold’s price appreciation than their neighbors to the East.
  • When this same correlation is lagged by one year – 2011 gold price acceleration matched up with 2010 GDP acceleration, for example – the correlation is essentially perfect: 0.9965. So if the Indian economy accelerated in 2011, you can probably expect gold prices to follow suit in 2012, and vice versa. In China, this correlation is much weaker at 0.53, but still significant for a one variable economic analysis.
  • Annual acceleration and deceleration in Indian and Chinese gold demand also have an almost perfect correlation to annual global GDP growth: 0.94 and 0.95, respectively. Essentially, when demand in these two countries drops, based on this correlation you might see global GDP fall as well.

Given this data, it is understandably concerning to fans of the yellow metal that Indian gold demand has not been as robust as expected so far this year. Part of the slowdown is due to a series of shutdowns by gold merchants, who closed shop for 20 days at the end of March to protest a rise on an excise tax on gold jewelry sales and a doubling of the import duty on the metal to 4%. And though the excise tax is now off the table, by one estimate (from the Bombay Bullion Association) gold merchants were seeing 50% less volume than the year ago period just before the Akshay Tritiya festival in late April, a traditionally strong period for gold sales. Some of the decline can also be attributed to rising inflation, according to some analysts: at 7.18% year-over-year so far in 2012, the rupee is down 8% in dollar terms and therefore represents a diminished source of gold purchases which are dollar-based.

But there are several reasons not to be pessimistic about gold prices even with the recent relative decline in Indian demand:

  • Gold prices are heavily correlated to the U.S. dollar – a strong greenback hurts gold demand around the world by lifting local prices.  The Indian Rupee has fallen victim to the global “Risk off” trade in recent weeks, falling below 54/dollar for the first time since last December.  At the same time, the Reserve Bank of India has reportedly launched aggressive interventions in the currency market to support the local currency.  And while we’re reluctant to base any investment analysis on the counter-market moves of any central bank’s activities, there is a lot at stake for the RBI in this case.  India, you see, has very little in the way of energy reserves and must import most of its oil – 80% by some counts – from overseas.  And those products are also priced in dollars, just like gold.  A stronger Rupee is therefore critical to continued economic growth, with gold demand in India an incidental beneficiary of this dynamic.
  • China is more than making up for the loss. Indian demand dropped by -7.2% in 2011, from 1,006.3 total tons in 2010 to 933.4. Chinese demand increased 21.7%, from 666.8 to 811.2. That’s a net gain of 71.5 tons. And with an annualized demand increase of 22.9% since 2006, it’s likely that China may surpass India as the largest gold consumer in the world in the next few years.

There is even cause to be bullish, if our Indian GDP correlation can be believed. The IMF projects that the Indian economy will decelerate by -0.9% this year, to 6.9% from 7.8% in 2011. If we plug in this -0.9% deceleration into the formula derived from “Change in annual Indian GDP growth vs. change in annual gold price growth”, we find that gold prices may actually accelerate by 2.8% in 2012 – meaning they will grow an additional 2.8% to the 27.2% appreciation from last year, resulting in a 30% increase. Based on yesterday’s closing prices, that puts the metal at $2,022.15 – just above the $2,000 mark some analysts have forecast.

The thought that a decline in the rate of Indian economic output would cause an increase in local demand is not as tortured as it might seem.  The appeal of gold is largely based on its long-proven value as a store of wealth.  The vaults at the Indian temple where we started this note weren’t filled with IOUs from Roman traders or shares of stock from the old East India Company.  That’s good news for the Hindu gods that first received these gifts, as well as their modern adherents who may benefit from the centuries of donations.  Gold does hold its value over long periods of time, and no country has a better case study of that fact at the moment than India.  So even if the economy there does slowdown in 2012, the resultant uncertainty doesn’t preordain a decline in gold demand.  It may even help.

While none of this guarantees that gold will experience some kind of meteoric rise to $2k, especially given all the other factors that contribute to prices, I think it’s safe to say that the supposed softening demand in India shouldn’t be too concerning. China is emerging as a critical consumer of gold on the world stage, and may even surpass India this year if trends continue. The country has more than offset declines in demand from their southeastern BRIC partner, and has helped drive up world consumption at a time when many other countries – particularly our own – are dropping out. The US has bought 42% less gold than it did in 2006. So when it comes to declining gold prices, don’t jump to blame India. After all, it isn’t even wedding season yet...

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rajat_bhatia's picture

Let the world go to hell, let the INR go to hell, All i need , All i have, is "SONAA & CHAANDI" (GOLD & SILVER)



PS: I'm really surprised to see some readers of ZH, advocating melting of the gold, and distributing it to the "poor", Yeah morons, lets destroy anything and everything that is of value, that is beautiful, and give the proceeds into the "generous" hands of the administrators. They wont ever act selfish, would they?

This kind of altruistic arrangement has worked wonders everywhere else, no?

Oh regional Indian's picture

So tortured and upside down, this analysis.

In India, right now, GOLD Loan Schemes is THE gold story. It's being mopped up from the great unwashed into Reserve Bank (Indian FED) regulated NBFC (Non Banking Finance Corps.... a nice, clean name for Gold Loan Sharking).

As was the additional tax (since withdrawn) and the outright manipulation (downwards, badly) of the rupee for it's two-fold benefits of pumping up slumping overseas poutsourcing/export earning AND keeping down the price of Silver (primarily) and of course Gold.

By the way, India's own gold-mines, primary in the state I live (Karnataka) have been mostly non-operational (flooded, old pumps andmachinery, labour disputes) for decades. Only illegal sifting goes on, dust.

And then there is all the "hidden stuff of legend"stories and temple finds that rock the three olympic sized pools EVER mined non-sesnse that GATA has made almost gospel.

It is an opaque and largely un-knowable thing, thsi gold business.

And all the legends say it killed those that were mad from it (some king had molten gold poured down his throat, and then of course there was Midas)..

Au is not-for-profitting from...



malikai's picture

some king had molten gold poured down his throat

Wow. He must have pissed someone off pretty bad.

Oh regional Indian's picture

Rebuke for Rome's greedy bribe taking ways..

 Not long afterward he [king Mithridates VI Eupator of Pontus] captured Manius Aquilius, one of the ambassadors and the one who was most to blame for this war. Mithridates led him around, bound on an ass, and compelled him to introduce himself to the public as "maniac". Finally, at Pergamon, Mithridates poured molten gold down his throat, thus rebuking the Romans for their bribe-taking.



Crassus, probablly the root of the world Crass...

A great humiliation to Rome, seven Roman eagles wound up in Parthian hands, making this a defeat on the order of Teutoberg and Allia. The winning general, the Parthian Surena, sent Crassus' body to the Parthian King Hyrodes, according to Plutarch. According to other sources, the Parthian king received the dead body and poured molten gold down Crassus' throat to punish him for his greed. See Plutarch's Life of Crassus.

malikai's picture

Notes have been taken. Ancient justice was always the best justice. When it was just, that is.

Comay Mierda's picture

fundamentals for gold are good, but it is getting slaughtered right now.  you dont think the big buyers want to see much lower prices?  of course they do and they will let it fall for a while.

gld puts or inverse etf to hedge for now.

When will you know that gold has hit bottom?  when you start seeing GS and JPM reports say it is crashing

Stuck on Zero's picture

I knew gold would go down when GS said it was going up about a month ago:



Oh regional Indian's picture

I saw what you did there! :-)


bahaar's picture

...and then Mitrudaitya cut open Manius Aquilius gullet and scraped off the gold (probably).  Ancients loved gold. But money (gold or any other form of currency) is worthless if it's not exchanged for goods or services.   Indians always hoarded gold.  In fact one of the complaints Romans had was that the Dinarius/Aureus that went into India never returned to circulation.  Because Indians melted the coins and turned them into jewelery, utensils whatever.  And fat lot of good that did.  If instead Indians had used the money to import Roman engineering and war techniques, it might have saved India from being conquered and subsewquent plunge into abysmal poverty.

jonjon831983's picture

See, with that temple gold find... I always wondered, how do you monetize it?  I am guessing these offerings from 18th century are historical artifacts.  Sure, melt value of $22B, but as history and art would they not be worth much more?  Or there is so much that its historical and art value plummet?

rajat_bhatia's picture

there is too much, one chanmber, the main one has not even been opened for fear of the curse and several opening workmen dying a few days after trying to break the door

Bindar Dundat's picture

A golden shower on Buffet and Co.   

Tao 4 the Show's picture

The question that is difficult to answer: What is the source of physical gold on the market? Is it just newly mined and investor turnover, or is some national stash being sold or leased? Spoils of war?

The Indian gold find above would present a challenge- melt it down? Sell the relics? Would seem they should go into a museum.

spooncutter's picture

read the new yorker article on the temple in india, there's still at least one more vault they havent opened yet. could be more billions worth of artifacts and gold in there.

PersonalResponsibility's picture

New Yorker






Does it make a difference?


silverdragon's picture

Silver is a better bet.

Ar-Pharazôn's picture

silver can be treated like industrial metal (which is already happened and it's for sure not good)


lemonobrien's picture

i hope gold has a negitive year to get all these pussies out of the game. plus, i want more; ans i know the math. America == supper fucked, Europe == getting wet, ready to get fucked hard, Japan == go go godzilla, yeah!!!, China == me so horny, me love you long time.

MeanReversion's picture

Maybe you know the math, but you don't know how to avoid sounding like a complete retard.

malikai's picture

People who speak like that do not know the math.

David Wooten's picture

One reason for the high demand for gold in India is that country's treatment of women.  When a women is divorced, she often gets nothing but what she's wearing including her jewelry.  A tax on jewelry in India is really a tax on women.

nufio's picture

Wrong!! its not divorces that cause demand for gold.

In most indian families the male child gets all the property, house, responsibility to look after the parents etc. The female child on the other hand is sent away to her husbands family with a lot of gold as dowry and kind of becomes part of the husbands family.. including the responsibility to look after his parents.

Its not any less primitive than the thought of women being left with gold after divorce. Divorce doesnt feature much in the cultural thought as divorce is pretty rare as most of the wealth in the vast majority of indian families is controlled by men (including the gold that came as dowry). However in the poorer sections of society there isnt much gold and families stick together out of economic necessity where only 2 working hands can provide enough for the family to survive. In the well to do families women are not expected to work, and a lot of women do not because they have the option not to. That is slowly changing in the cities as cost of living is going higher and again 2 working hands is needed for supporting the family.

Another factor for gold demand is the general insecurity of a vast segment of population and their need to show off their wealth. This is best displayd by covering a female in gold when she is married off. After the zillion people invited to see the wedding see all the gold being sent with the daughter, the families social status is established, and becomes something to beat for the next wedding from some other family. To aid this new businesses have sprung up that rent out gold jewellery for weddings. This way the social insecurity angle is satisfied at something like 10% the price of gold.

In spite of all the social retardation, people innately value gold way more than in the west becauuse inflation is a way of life over there and most common people dont have many ways to hedge againt inflation.

David Wooten's picture

All true but what I said was 'One' reason why Indians buy gold is its treatment of women.

zebrasquid's picture

Lots of nervous nellies around in gold the past couple of weeks.

Classic weak hands.  Good riddance.   Anyone who think that gold is a bubble, even though less than 1% of total investable assets in the world are gold assets -- is on the wrong end of good reasoning ability.   Maybe start to talk to me about a bubble after gold finally equals, in inflation adjusted numbers, its price of 32 years ago.   That's right 32 years it's still selling for less than it did.   Name another asset that that is true of, Charlie Munger (I thought those old geezers liked buying underpriced assets! -- seems like they forgot all that, and just like buy toxic bank stocks, like BAC and more Wells Fargo).   Munger and Buffett peaked 32 years ago, maybe, but gold is just starting it ascent.  What, you want to sell it and put the money in dollars! In a bank, no less!  You gotta be kidding!



Bastiat009's picture

US$ yielding 0.5% yearly, now that's an exciting investment.

BorisTheBlade's picture

I will believe in gold bubble when Cramer starts ranting about buying gold on a daily basis and JPM and GS come out with 'strong buy' recommendations for gold. In the meantime, much bigger and real bubble I see in Facebook, shit maximum valuation is over US$ 100 per active user. Hundred bucks per face. Damn, how can anyone justify something like that and at the same time bash gold. Incomprehensible.

bharat's picture

Beep - beep - beep - beep.......

malikai's picture

Sir, the fee for parking here is 1oz/hr.

PersonalResponsibility's picture

"China is emerging as a critical consumer of gold on the world stage"

I think the population of China will buy things (houses, cars, stuff...) vs Gold.  The regular Joe will be the same as here and everywhere.  It's life.


It's all down-hill


bharat's picture

As most of you might know, one of GATA's theses is that the western central banks have been aggressively (and surreptitiously) selling gold into the market to suppress the price.  I was really surprised to find out that the Indian central bank is playing that game as well. Recently a lawsuit was filed against the Reserve Bank of India for holding 265 tons of gold abroad at the BIS and other banks, even though the law (Reserve Bank of India act) EXPLICITLY states that no more than 15% of the gold holdings can be held abroad. I wonder why someone at the RBI would be foolish enough to go against the law when there is a clear mandate to hold the physical gold within the country.


This confirms to me that what GATA has written about is very likely true, and in fact, the problem of supply may be even worse than what they think it is.

Bastiat009's picture

Financial news is just creative writing, nothing else. I have heard dozens of reasons to buy gold and dozens of reasons not to buy gold and dozens of reasons to explain gold prices fall or rise.

Last night, on this site, I read that gold had fallen because of some random margin calls ... I wonder what will be the reason today, another margin call, the surprising bankruptcy of Greece, the Indians, the Chinese, the Aussies, the loonie ...

My point is that there is no reliable news source when it comes to financial markets for a simple reason: no one really seems to know what is going on.

StychoKiller's picture

Add this to yer collection (from Harvey Organ, Tuesday post):

(courtesy Jim Willie)

After a seeming tough messy but productive week in the gold trading trench warfare, my reliable gold trader source offered a summary with more expressed satisfaction than ever conveyed in all the years we have been in contact. It is not completely over as a war, but the Battle of the Bulge and Battle of Midway seem concluded, each a major victory. This message is of chest pounding with a foot atop a dead victim. The gold price is surely depressed, but the gold cartel is reportedly mortally wounded. The path upward might be cleared to the point of ending this latest round of price suppression. The Good Guys have finished a mission for this round. The gold trader has a keen knowledge of WW2 and hardened experience of Russia. He wrote, "This is great. The market is cleaned out when it comes to physical. The purchases to drain the cartel are 1000 MT [metric tons] per shot/transaction. The Boyz are illiquid and have to sell at budget bargain prices. The ones they used to patronize and torment are now screwing them back using a telephone pole up the hind quarters with the tip wrapped in razor wire. No prisoners are being taken. I have never seen such merciless executions to that magnitude in my entire career. The target banks call for help and protection, not knowing that they are actually confronted with their executioners. It must be a lonely feeling when the only thing they sense is their own warm blood running down their bodies. They know they are done. It is like the final scene in Enemy at the Gates where Vassili Zaitsev, the legendary Russian sniper, out-maneuvers the German Major Konig sharpshooter. The major takes of his cap, looks at Zaitzev who put a bullet right between his eyes. The real players know when it is game over." This note is encouragement to the extreme for investors to stay in the game, hang onto the gold & silver bars, and wait for the rise like a phoenix in precious metals price since the resistance by the cartel has been significantly removed to the point of assuring victory with a heap of confidence. The Eastern Coalition has transferred over one quarter of a $trillion in gold bullion in under three months from the Western gold cartel camp and munitions cache. They are left defenseless in New York, London, and Western Europe, unable to stop what comes, which in plain terms will be a rise in the gold price that zooms past $2000/oz and finds its rightful level based on value and equilibrium free from the tight grip of suppression. The Jackass cannot promise a date when the historical phoenix rise will occur, but it is on this side of the horizon. The outcome is assured. It is unclear what the laurels will look like or what the air will be like relaxing and healing from the battle waged, sitting on the porch sipping ice tea or whisky sours. Details on the denouement are not at all clear.

DoChenRollingBearing's picture

FOFOA sez that it is HARD for ANYONE to buy more than about 100 metric tons at a time...

ebworthen's picture

Bizarre trend for "white gold" wedding rings.


There is an oxymoron if I ever heard one:  "white gold".

What's next, "yellow silver"? blue oranges"?

The dollar is only temporarily up because of the Euro bank runs.

The worm will eventually turn toward the dollar; and despite the quoted value it is being debauched like a kidnapped virgin on the Jolly Roger.  27.9% in just the past ten years yet the markets have gone nowhere (and that using Government CPI data *cough*).

20 year Dollar versus Gold chart:

emersonreturn's picture

ebworthen, white gold as a choice for wedding rings comes and goes.   my mother's band was white gold.  she married at the beginning of the may be a coincidence...or perhaps a sign of the times. yet another leading indicator. 

devo's picture

China is imploding right now.

Dorky's picture

This article is extremely twisted and highly misleading.

acediac's picture

"The vaults at the Indian temple where we started this note weren’t filled with IOUs from Roman traders or shares of stock from the old East India Company."


I was just imagining a vault being opened in 2312 and people finding 100 million shares of a long bankrupt JPM...

Anyway why does the jewelry have to be melted down? They can be sold as historical artifacts for more money and the proceeds can still benefit the poor. But a $100 trillion bet says that most of the hoard will disappear down the pockets of officials, the "dozen of soldiers establishing a 24x7 surveillance", government coffers and even a planned guerilla looting raid within a few months. 


ChickenTikka's picture

Holy mutlicolliinerity!  India is not the driver of gold price. India's demand for anything really only correlates with how much money we give them and how much tech we bring them. When the foreign money doesn't come in, nothing happens here.  No gold gets bought.  The rupee gets weaker.  Even less gold gets bought. 

When money comes in, the rupee gets stronger, gold in Rupees gets cheaper, and since there is money available Indians buy gold and bury it for a few centuries.

orangegeek's picture

We overlaid the gold bugs index to gold.

Stocks have been sliding for a while.  Gold is catching up now.

Bartanist's picture

What this tells me is that if China or India are to be the powers of the future then gold will play a more important role.

It is true though, gold is no more a currency than funny colored paper or computer counting bits. It is its perception of value that makes it a store of wealth and not its actual utility ... unless you count its comparative demand for jewelry.

But, even so, there is nothing wrong with quantities of shiney metal to represent the fiat state of labor instead of printed linnen. It has greater longevity.

Bartanist's picture

An interesting, yet unrelated observation by the daughter of one of our friends. She recently returned from a semester of study abroad in India. She was notified by the Indian university that she had been given a C. This she thought was unfair, because even though the "Western" students in the class did not cheat on the examinations, the Indian students to a one uniformly cheated. The pervasiveness of the cheating made the young woman wonder if India has a culture of cheating and if so, what would bring them to that point?!? No moral stigma? An ends justify the means mentality? Just excessive pressure from extreme competition and the frailty of their human condition?

She protested the grade, stating that she should not be penalized because she refused to cheat and the Indian university raised her grade. Maybe they did not want the condition of their educational institution and students exposed on the internet ... and the most expedient answer for them was to satisfy the complainer... and I find that ironic.

EmileLargo's picture

There is plenty of cheating in the Ivy Leagues too. It is simply called "grade inflation".

ChickenTikka's picture

Cheating? Ha!  I really wonder if some Americans really don't know what the rest of the world is like.  Everybody fucking cheats, lies, and steals every chance they get in most places. 

In any case, I'm sure your friends daughter got cheated twice.  First she probably paid way too much money for tuition to that university who then performed a cash and carry arbitrage by dumping her on this Indian university and netting the profits.  The Indian university then probably overcharged her university and then fucked her with a C.