Rabi and sugar are what matter most for gold at the moment. Not surprisingly, when I told her that, Isabel asked me what on earth I was talking about. So I explained that good harvests for these two important winter crops would decide Indian farming families’ income. Now all is clear!
Gold is the store of wealth for India’s farmers — and with 75% of the population living off the land they are important. Historically they are mega gold buyers — mainly jewellery for dowries and for savings — and a major reason behind India importing a fifth of global gold output.
As the guys at the BullionVault point out, private individuals in India are now thought to own between 13,000 and 15,000 tonnes of gold — around 10% of the world's entire above-ground stocks. That's more than the US, German and French governments put together.
The farmers are feeling rich
India’s farmers are feeling rich at the moment. Most of their crops are being priced at above the government’s minimum support prices. Land planted with rabi has been reduced, yet good selling levels for the pulses are forecast. Sugar plantings are also down and the market is very bullish, buoyed by strong demand for the alternative fuel ethanol. So the last thing gold needs is heavy snow or sharp frosts in the Punjab.
Some good news from the jewellers in India’s bazaars would be very welcome. They’ve not been having a good time recently. Last quarter’s rise in the gold price slowed their business.
Latest figures from the World Gold Council showed a rise in Indian buying of 7% for 2007 as a whole. All-in India bought a whopping 773.6 tonnes, of which 558.2 tonnes went to the jewellers. In the last quarter, however, the tonnage slipped back to the lowest level seen since the early 1990s. Demand was down by 64% against the same time in 2006 (though January 2006 was an exceptionally strong month). Even against 2005, when the price was also volatile, there was a fall — from 99.5 tonnes to 54 tonnes. This January saw another fall.
City buyers took a different view. Investment buying was robust, reaching a record for India. The fact that gold’s price is rising is a plus for savers and traders. Indian investors could celebrate the fact they saw a 16% return on their investment, in rupee terms, in 2007.
India has gone for investment in medals and coins in a big way. Savers there were responsible for the 22% gain seen in this sector globally. They account for the bulk of interest in this category. They’ve also jumped in to the market for Indian gold exchange traded funds.
But gold volatility discourages buyers
At the World Gold Council the experts say it is the price volatility that causes consternation in the villages rather than the gold price. Consumers hold off buying in the hope the price will revert. If it just goes up steadily, they are less likely to resist.
The experts could have a point. After all, early in 2007 when the price was less volatile demand for gold jewellery rose by 40%. Putting that gain in context, Chinese demand rose by 24% over the period, and jumped 14% in the Middle East.
Attitudes are different in China — maybe because for the Chinese middle classes buying gold is a newer experience. Chinese demand grew, regardless of price, through the year. The total for 2007 was 326 tonnes, of which 302 tonnes went for jewellery. So the Chinese spent more on gold jewellery last year than the Americans!
Indian jewellers are being quoted in The Hindu Business as saying that maybe if they stay away the price of gold will fall. Unfortunately for them, gold is not short of buyers in the rest of the world!
Fashion may be having a say in the Indian jewellers’ problems. Perhaps someone is calling the wrong trend for a time when the gold price is rising. According to a Hindustan Times story the new fashion is for heavy jewellery. It quotes Ashokbhai, a jewellery exporter in Rajkot, as saying the new lines will be 200-300 grams, against 30-70 grams now. Undoubtedly fashion has been over-pitching to India’s rising wealth!
For the future India wants gold self-reliance
India’s government wants to do something about its population’s love affair with gold. It wants to kerb reliance on imports and is making self-sufficiency in gold a priority. At the moment 99% of India’s gold and diamond requirements are brought in. Last month Union Minister for Mines, T S Reddy, reportedly told parliament that that a reserve of 15,000 tonnes of gold had been identified around the country.
The minister set a target of $10bn of mined production in the next five years. (He also wants to build a precious metal and mining industry with five million jobs.) Knowing that this is beyond local skills to development, India has approached Canada for help. Canada’s Minister for Economic and Development and Trade was in New Delhi last month for discussions.
Foreign companies have already approached India with requests for mining leases. First step, however, seems to be to obtain better geological data so that India know what it is selling. Back last autumn Mr. Reddy was lamenting, among other things, the lack of modern technology, geologists and mining engineers. So Canada is going to supply helicopters with specialist air-borne surveying equipment, and instigate training.
India’s stock markets wouldn’t say no to a few more mining companies, either. Investors do not have a lot of choice. Deccan Gold Mines became the first private sector gold exploration company to list in Mumbai when it made its IPO five years. Despite consistent lobbying, continuing difficulties in obtaining licences has kept Deccan a rarity.
Complaints from international mining companies, who ask to remain nameless, range from "nationalist policies of past governments" to "non-investor friendly mining policies." Plus, the state-owned companies have not spent much on exploring. Hence India’s low annual primary mine output of only two to three tonnes.
Unfortunately for India, mining industries can’t be development overnight. But Minister Reddy has made a start.
Keep mining.
Erin and Isabel
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