GOLD NOWUnlocking The Potential OfDomestic Supply Of Gold
Neha MalikResearch Analyst, NCDEX
NCDEX Investor (Client) Protection Fund Trust
Issued in Public Interest
Executive Summary....................................................................... 1 to 1
Introduction................................................................................... 2 to 3
Patterns of Gold Demand in India.................................................. 4 to 6
Gold Loans (An Overview)............................................................. 7 to 7
Stemming Gold Imports................................................................. 8 to 9
NCDEX ‘Gold Now’ Forwards.................................................... 10 to 13
Other Ways to Achieve Self-Sufficiency in Gold........................ 14 to 14
Pricing of Gold in India.............................................................. 15 to 16
Conclusion................................................................................. 17 to 18
Index
NCDEX Investor (Client) Protection Fund Trust
Issued in Public Interest
Gold occupies an important place in the Indian economy. Its possession has
always been considered as a sign of prosperity. Acquisition of gold is governed by
both consumption and investment requirements with the latter gaining importance
in the recent past. Since domestic production of gold is close to negligible, almost
entire demand is met by imports which has exerted pressure on India’s current
account balance. Enabling India to become self-sufficient in gold by generating
domestic supply channels is therefore extremely crucial.
As per available estimates, approximately 22,000 tonnes of gold is currently lying
with the Indian households. If tapped effectively, this could create an opportunity
for facilitating domestic supply of gold while reducing reliance on imports. Various
measures have already been adopted to bring this gold into circulation but they
have met with limited success.
By launching India Good Delivery based gold forwards, NCDEX plans to
encourage domestic supply of gold and stem the growing reliance on imports. In
the process, NCDEX also plans to standardise domestic refineries through
accreditation as per international quality parameters. The forwards gold platform
may also be ideal for jewellers for efficiently managing their inventories. More
importantly, pricing of gold under such contracts will be left to the market forces to
promote transparency.
Effective monetisation of gold and creation of its domestic supply however calls
for an appropriate policy response in both regulatory and monetary spheres.
Change in the government perception therefore, becomes a pre-requisite for
achieving this goal.
Executive Summary
1
1
Introduction
Gold occupies an important place in the Indian economy. Possession of
gold has always been considered as a sign of prosperity. Over the years, it has
also become a preferred investment class providing an effective hedge against
inflation. A consistent rise in the investment demand for gold bears testimony to
this fact. Gold has also always been easily accepted as a collateral to meet liquidity
requirements of the borrower. This practice has been further facilitated by intro-
duction of the gold loan scheme under the formal banking network.
Both India and China accounted for 54 percent of consumer gold demand in
20141. Since domestic production of gold in India is close to negligible, almost
entire demand is met by way of imports. For instance, of the total supply of gold
in India, imports constituted close to 90 percent during 2011-2014. 2A high level of
gold imports has been a drag on India’s current account. Current account deficit
equalled 4.7 percent of GDP in 2012-133 due to which the RBI was forced to
impose restrictions on imports of gold4.
As per available estimates, approximately 22,000 tonnes of gold is currently
resting with the Indian households5. If tapped effectively, this could create an
opportunity for facilitating domestic supply of gold while reducing reliance on
imports. Various measures (such as the gold deposit scheme) have already been
adopted to bring this gold into circulation. However, they have not been
successful given the lack of a requisite infrastructure and standardisation norms
essential for developing a domestic market for gold.
Since domestically refined gold does not enjoy the same recognition and
acceptance in India as the London Bullion Market Association (LBMA) certified
gold, there is a need to scale up the standards of the former in order to create
self-sufficiency in this product.
1) Gold Demand Trends, World Gold Council, Full Year 2014. 2) Please refer to Table 1 in the
Appendix for details. 3) Economic Survey 2013-14, Ministry of Finance. 4) “Import of Gold by
Nominated Banks/Agencies”, RBI/2012-13/499, Circular No.103, May 13, 2013. 5) “Why
India Needs a Gold Policy”, FICCI, Dec. 2014
2
2
1By allowing India ‘Good Delivery Gold’ to be delivered under ‘Gold Now’ forwards,
NCDEX aims to encourage domestic supply of gold and facilitate development of
domestic gold refineries, while helping the gems and jewellery sector move up the
value chain. More importantly, pricing of gold under such contracts will be left to
the market forces to promote transparency.
This however, needs to be backed by an appropriate policy and regulatory
support. Greater awareness on the benefits of using dematerialised and paper
gold can also address the growing appetite for the commodity without exerting
pressure on India’s current account. Facilitation of domestically refined physical
gold coupled with efforts to encourage investment in paper gold can help India
become self-sufficient in the product.
3
3
6) Please refer to Table 2 in the Appendix for additional details.
Patterns of Gold Demand in India
Gold demand in India can be bifurcated into three components i.e. consumption,
investment and industrial demand. Industrial demand for gold is highly
insignificant when compared to its other counterparts. For instance, in 2013,
industrial demand for gold equalled 12 tonnes only as compared to consumer
and investment demand which stood at 975 tonnes and 362 tonnes respectively6.
While both consumer and investment demand have been consistently rising over
time (Fig.1), consumer demand has been much higher than its investment
counterpart.
Figure1: Consumer and Investment Demand of Gold in India (In tonnes)
Source: GFMS, Thomson Reuters
0200400600800
10001200
Investment Demand Consumer Demand
As per GFMS (Thomson Reuters) methodology, components of gold supply
include primary mine production, old scrap returned to the market and net
hedging activity while the demand for gold is a function of jewellery fabrication,
gold used in electronics as well as in medical and industrial applications. Retail
investment (comprising of net consumption of gold bars and coins) and central
bank holdings of gold also form a part of the demand. Table 1 uses this
methodology to determine the level of physical demand-supply gap in India. Net
hedging activity (on the supply side), use of gold in dental applications and net
official sector (on the demand side) have been excluded from the calculations
due to non-availability/applicability of data. A significant domestic deficit is
observed for India which explains the increasing dependency on gold imports.
4
7) “Long run price elasticity of gold import demand varies from -0.69 to -1.01, indicating moderately
inelastic to unitary elastic demand”. Source: Kanjilal, K., and Ghosh, S., “Income and price elasticity of
gold import demand in India: Empirical Evidence from threshold and ARDL bounds test cointegration”,
Resources Policy 41 (2014), 135-142. 8) Please refer to Fig. 1 in the Appendix. 9) Kanjilal, K., and
Ghosh, S., “Income and price elasticity of gold import demand in India: Empirical Evidence from
threshold and ARDL bounds test cointegration”, Resources Policy 41 (2014), 135-142
In addition to the above, demand for gold in India is inelastic which implies that an
increase in the price of gold does not necessarily induce a fall in its demand7.
Instead, it is usually associated with a rise (or an inconsequential change) in
consumer demand for gold8. Rising consumer demand for gold and hence,
imports, has been a drag on India’s current account (Fig. 2). Empirical research
has established a long-run relationship (co-integration) between gold import
demand, real gold price and real GDP. Short-run causality from gold import
demand to real price of gold by way of changes in the custom duty has also been
proven.9
Table 1: Domestic Gold Demand and Supply Balance Sheet (In tonnes)
1.6
101.0
102.6
1.7
113.0
114.7
2.3
59.0
61.3
2.8
81.0
83.8
2010 2011 2012 2013
1. Mine Production
2. Gold Supply from Scrap
3. Total Supply (1+2)
607.4
12.1
2.4
9.7
362.1
265.8
96.3
981.6
879
618.2
11.5
2.4
9.1
312.2
205.9
106.3
941.9
827.2
667.0
14
2.5
11.5
368
288
80
1049
987.7
685.0
15.7
2.5
13.2
348.9
266.3
82.6
1049.6
965.8
4. Jewellery
5. Industrial Fabrication (5.1+5.2)
5.1 Of which Electronics
5.2 Of which Other Industrial Uses
6. Retail Investment (6.1+6.2)
6.1 Of which Bars
6.2 Of which Metals and Imitation Coins
7. Total Demand
8. Domestic Deficit (Demand- Supply) (7-3)
Supply
Demand
Source: Author’s calculations based on the data extracted from GFMS, Thomson Reuters
5
10) Rosch, A. and Schmidbauer, H., “Impact of Festivals on Gold Price Expectation and Volatility”, FOM
University of Applied Sciencies, Munich, Germany, 2012.
Another crucial observation is seasonality in consumer demand for gold
determined mainly by festivals such as Akshaya Tritiya and Diwali. It has been
found that festivals like Akshaya Tritiya have an impact on the distribution of gold
price changes.10
Fig. 2 India’s Gold Imports and Current Account
Source: Handbook of Statistics for the Indian Economy 2013-14, RBI Note: Imports are measured on the LHS and the Current Account Balance on the RHS
-6000
-5000
-4000
-3000
-2000
-1000
0
0
500
1000
1500
2000
2500
3000
3500
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Import of gold (Rs. Cr) Net Current Account Balance (Rs. Bn)
6
11) Gupta, S. et al, “All that glitters is Gold: India Jewellery Review, 2013”, AT Kearney and FICCI,
November 2013. 12) “Committee on Comprehensive Financial Services for Small Businesses and Low
Income Households”, RBI, Dec. 2013. 13) “Surveying the Indian Gold Loan Market”, Cognizant 20-20
insights, January 2012. 14) Report of the Working Group to Study the Issues Related to Gold Imports
and Gold Loans NBFCs in India, RBI, Feb 2013. 15) The RBI working report on gold (2013) was the only
report to publish time series data on the growth of gold loans by banks and NBFCs. No other
publication has attempted to provide such statistics after this report. 16) “Surveying the Indian Gold
Loan Market”, Cognizant 20-20 insights, January 2012. 17) Report of the Working Group to Study the
Issues Related to Gold Imports and Gold Loans NBFCs in India, RBI, Feb 2013
Gold Loans (An Overview)
A significant proportion of demand for gold jewellery i.e. about 60 -65 percent
comes from tier two towns and rural parts of the country11. Since most rural
pockets still do not have access to formal banking facilities12, investment in gold
is usually preferred as it offers a hedge against inflation.
Another benefit of investing in gold is its use as a collateral to satisfy immediate
liquidity requirements. Borrowings against gold as a collateral have been an age
old practice in India, mainly in the informal market, a part of which has
subsequently been captured by formal loan companies.13 Commercial and
Co-operative banks as well as the non-deposit taking, systemically important
NBFCs (NBFC-ND-SI) are some of the prominent players in the formal market for
gold loans14. Over time, total outstanding gold loans (sum total of banks and
NBFCs) have exhibited a rising trend15 (Table 2).
Factors such as higher loan to value ratios coupled with relatively easy disbursals
have contributed towards increasing the demand for gold loans and
consequently for gold jewellery. This has ultimately impacted the level of gold
imports16. It has been estimated that 1 percent change in gold loans leads to
0.3 percent change in volume of gold imports.17
Table 2: Annual Growth Rate of Gold Loans Outstanding (In percent)
52.5
62.6
67.2
78.3
41.4
169.3
126.7
80
54.2
47.7
52.1
77.6
2008-09
2009-10
2010-11
2011-12
Bank Gold Loans NBFC Gold Loans Total Gold Loans
Source: Report of the Working Group to Study the Issues Related to Gold Importsand Gold Loans NBFCs in India, RBI
4
7
18) “Why India Needs a Gold Policy”, FICCI, Dec. 2014.19) The actual imports in 2014 amounted to 769
tonnes as per World Gold Council. 20) Rangarajan, C., “Containing the Demand for Gold”, 6th
International Gold Summit, The Associated Chambers of Commerce and Industry of India, New Delhi,
May 2013. 21) “All Scheduled Commercial Banks authorised to deal in Gold”, RBI, February 14, 2013.
http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7865&Mode=0. 22) “Why India Needs a Gold
Policy”, FICCI and World Gold Council, Nov.2014
Stemming Gold Imports:Key Areas of Concern
Approximately 22,000 tonnes of gold is estimated to be lying with the Indian
Households18. Even if a small percentage of the estimated stock is brought into
circulation, it may lead to a considerable reduction in gold imports and help India
gain self-sufficiency in the product. Considering the hypothetical case presented
in Table 3, the imports in 2014 would have amounted to approximately 300 tonnes
instead of the actual 769 tonnes if 2 percent of the estimated stock was mobilised
and recycled.19
Several solutions such as the Gold Deposit Scheme (GDS), Gold
Exchange-Traded Funds (ETFs) as well as the possibility of setting up a bullion
corporation have been suggested and even implemented20. While the Gold
Deposit Scheme has met with limited success, Gold ETFs have actually
exacerbated the problem of growing dependency on gold imports. The RBI
introduced the Gold Deposit Scheme (GDS) in 1999 with the objective of bringing
privately held gold into circulation21. Some of the main attributes of the scheme
include interest rate on deposited gold, partial withdrawal of deposited gold,
maturity period ranging from six months to seven years, pre-payment of the
deposit, etc.22
1Table 3: Possible Impact of Release of ‘Under the Pillow’ Gold on Imports
22,000
400 (approximately)
400 (approximately)
Total amount of gold estimated to beresting with the Indian households
Mobilisation and recycling of 2% of theestimated amount annually
Expected annual fall in imports
Amount (in tonnes)
Source: Author’s calculations based on the available estimates of gold lying with the Indian households
5
8
23) Refer to footnote 22 . 24) Rangarajan, C., “Containing the Demand for Gold”, 6th International Gold
Summit, The Associated Chambers of Commerce and Industry of India, New Delhi, May 2013
Products such as GDS and Gold ETFs are therefore not complete solutions in
themselves and need to be supplemented with an overall system overhaul
involving upgradation of domestic infrastructure for recycling gold coupled with
appropriate regulatory measures.
Although all Scheduled Commercial Banks (SCBs) are authorised by the RBI to
accept gold deposits, currently only a few select banks i.e. State Bank of India,
Indian Overseas Bank and Corporation Bank offer GDS. Partial success of the
scheme has been primarily attributed to an unreasonably high minimum amount
of deposit (500 grams), lack of assaying facilities and absence of
standardisation norms.23
Gold ETFs in India are required to maintain 100 percent gold reserves against
investments. Moreover, the gold held in reserves needs to be LBMA certified.
Demand for ETF units therefore, cannot be delinked from demand for gold which
suggests a direct relationship between ETFs and gold imports (Fig.3). Hence,
ETFs cannot be considered as an effective instrument to stem gold imports since
they only defer demand instead of lowering it.24
Fig.3 Assets under Management in Gold ETFs and Imports of Gold (Monthwise)
Source: Association of Mutual Fund and Thomson Reuters
0
50
100
150
200
250
300
350
0
2000
4000
6000
8000
10000
12000
14000
Dec-11 Mar-12 Sep-12 Dec-12 Mar-13 Sep-13 Dec-13 Mar-14
AUM (Rs.cr) LHS Imports (Rs. Bn) RHS
9
25) “All that glitters is Gold: India Jewellery Review”, AT Kearney, FICCI, 2013. 26) Jose, J.,“Gold
Refining Industry in India”, Association of Gold Refineries and Mints. 27) Refer to footnote 26
28) http://www.lbma.org.uk/_blog/lbma_media_centre/post/mmtcpamp/
NCDEX ‘Gold Now’ Forwards: Enabling India to become self - sufficient in gold
Gold bullion imported into India (from global refineries) is certified by London
Bullion Market Association (LBMA). Gold used in the Indian financial system i.e.
gold reserves under ETFs and gold bought back by banks is also required to be
LBMA approved25. Operations of the Indian gold refineries are based on gold
dore bars imported mainly from Africa and Latin America as well as scrap gold
supplied in the domestic market26.
Domestic gold refineries are currently operating at 25 percent of their installed
capacity27. Fall in the domestic scrap supply in the recent past (Fig.4) has also
adversely impacted the business of the refineries. Fig. 4 also shows domestic
scrap supply has a direct positive relationship with the price of gold. More
importantly, since domestic gold refineries (apart from MMTC-PAMP) do not enjoy
the same status as LBMA accredited refineries, it severely retards their growth.
MMTC-PAMP was the first Indian refinery to get the LBMA certification in 201428. It
is, however, an extremely difficult and cumbersome procedure to receive LBMA
accreditation. In order to create self-sufficiency in gold, it is imperative to devise
ways and methods to upgrade the status of domestic gold refineries.
6
4Figure : Scrap Gold Supply and Price of Gold in India
Source: GFMS, Thomson Reuters and Handbook of Statistics on the Indian Economy
0
5000
10000
15000
20000
25000
30000
35000
0
20
40
60
80
100
120
2010 2011 2012 2013
Scrap Gold (in tonnes) LHS Price (10 gms) RHS
10
29) “Banks in the Southern states rejected a reasonable amount of gold deposit under the GDS scheme
owing to lack of proper assaying facilities”, “Why India needs a Gold Policy”, FICCI, Dec. 2014.
30) Rangarajan, C., “Containing the Demand for Gold”, 6th International Gold Summit, The Associated
Chambers of Commerce and Industry of India, New Delhi, May 2013. 31) “Why India needs a Gold
Policy”, FICCI, Dec. 2014.
NCDEX ‘Gold Now’ forwards is an initiative towards encouraging domestic supply
of gold by providing an impetus to the Indian gold refinery industry. The
underlying scheme entails NCDEX accreditation to domestic gold refineries
based on international quality parameters and standards where a stipulated
minimum level of production and tangible net worth, as well as audit of financial
statements comprise some of the basic qualifying criterion. A stringent procedure
for sample assaying is also a part of the process. Standardisation accorded to the
domestic refiners will add credibility to the quality of domestic gold and also
widen its acceptance in the Indian financial system29. NCDEX ‘Gold Now’
forwards, by encouraging only ‘India Good Delivery Gold’ to be delivered on the
exchange can thus help in creation of a professional domestic refinery industry
similar to that achieved in the warehousing industry a few years ago.
At present, gold is bought and sold through both formal and informal channels30.
As pointed earlier, an estimated stock of 22,000 tonnes is lying with the Indian
households. A small percentage of this stock if mobilised effectively could help
create a domestic supply channel for gold. In order to encourage supply of
privately held gold into the system, it is important to facilitate transparent price
formation mechanism, upgrade domestic refinery infrastructure and introduce
innovative financial schemes while modifying existing products (such as the Gold
Deposit Scheme). A survey by FICCI (2014) shows that consumers are willing to
part with their gold if provided with the right kind of incentives in the form of
properly structured savings and investment products. It also shows that
attachment to ancestral gold is not as rigid as it is perceived to be31.
Exhibits 1 and 2 present the current and the proposed structure of gold industry
in India.
11
Exhibit 1: Present Structure of the Gold Industry in India
12
Gold Demand
Consumption Demand
Investment Demand
Gold Supply
Mine Production
Recycled Gold
LBMA Accredited Refineries
22,000 tonnes of gold lying
with the Indian Households
Untapped
Domestic Refineries
Imports(Greatest Source
of Supply)
Exhibit 2: Proposed Structure of the Gold Industry in India
Gold Demand
Consumption Demand
Investment Demand
Gold Supply
Mine Production
Imports Recycled Gold
LBMA Accredited Refineries
22,000 tonnes of gold lying with
the Indian Households
NCDEX Accredited Refineries
Market for buying and selling gold
Gold Deposit Scheme
13
Other Ways to Achieve Self-Sufficiency in Gold
Initiatives taken to upgrade the infrastructure of the domestic gold industry
need to be accompanied with commensurate policy response. Since gold is
increasingly being preferred as an investment class, innovative solutions to tap
this component of demand need to be developed. Some of these are
explained below -
Gold Certificates
Investment demand for gold could be captured without actually creating the need
to physically hold the gold by way of issuance of gold certificates. Gold certificates
are essentially a way to invest in gold without actually physically owning it. Since
the investment in gold is restricted to owning the paper, such certificates represent
a great substitute to the purchase of bars and coins. The issuer i.e. the bank
entitles the investor to redeem the amount of gold (in cash) specified on the
certificate according to the value of gold on the day of redemption.
If investment demand for gold in the form of bars and coins could be substituted
with gold certificates, there will be an additional advantage of earning interest on
the investment apart from the relief of physically storing gold. Gold certificates can
be of two kinds i.e. allocated and unallocated. In case of an allocated gold
certificate, the bank holds the amount of gold specified on the certificate while
unallocated gold certificates are usually not backed by any physical gold.
India Branded Gold Coins
The Government could also promote India branded gold coins which could be
minted by recycling gold. Commencement of work on developing the Indian gold
coin as announced in the Budget (2015-16) is a step in this direction. Gold
currently estimated to be lying with the Indian households could be brought into
the system to be recycled by recognised domestic refineries. Additional
measures could also be undertaken to develop an effective channel for buying
and selling gold.
7
14
Table 4: Daily Gold Rates (`per 10 gms) in different cities
(9th Feb-16th Feb 2015)
Source: Thomson Reuters
Pricing of Gold in India
Although a high positive correlation is observed between domestic and
international gold prices32, there is no clear criteria for pricing of gold in India.
Domestic price of gold is a function of the international price of gold, India/US
exchange rate, customs duty and local premium.33 The divergence in domestic
and international price of gold is mainly explained by customs and premium
component. While determining the price of gold applicable to each state, an
additional component of Value Added Tax (usually in the range of 1-2 percent)
also gets added.
An Example
We consider the landed domestic gold price for 12th of Feb 2015 (`27120/10
gms) derived from the international price on the same day (Table 3 in the
appendix). We also consider the local gold prices for three cities i.e. Ahmedabad,
Mumbai and Chennai on the same day. It can be seen that the local price of gold
as on 12th Feb. 2015 in all three cities in question deviates from the derived
landed price (Table 4). The data also suggests variation in gold pricing across the
cities on 12th Feb. 2015 and all other days of the week considered in the example.
Since the VAT component (1-2 percent) is almost uniform across all states, it is
mainly the local premium which can be held responsible for the state-wise
divergence in gold pricing.
Date Ahmedabad Mumbai Chennai
2/11/2015
2/12/2015
2/13/2015
2/16/2015
2/9/2015 27,400 27,200 27,650
27,600
27,480
27,500
27,550
27,200
26,700
26,800
27,000
27,375
27,200
27,225
27,325
8
32) Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans NBFCs
in India, RBI, Feb 2013. 33) Domestic price of gold is arrived at by multiplying the international price of
gold with the RBI reference rate and adjusting the same for custom duties and tariff values as well as
value added tax (for local pricing of gold). A local premium component is then added to this.
15
Apart from this, significant changes in daily gold rate for a particular state can also
be observed. Fig. 5 provides movement in daily gold rates for Ahmedabad for the
week of 9th Feb. 2015. There is a lack of clarity on the assessment of the premium
component embedded in the local price of gold. Not only does it vary across
states but is also subject to volatility within a particular area/state.
NCDEX ‘Gold Now’ forwards aim to promote transparency in domestic gold
pricing by subjecting it to the market forces. In addition, under the scheme of
NCDEX Gold Futures, the premium component will be polled by an independent
and unbiased entity which will further add to the transparency.
Source: Reuters Database
27,100
27,150
27,200
27,250
27,300
27,350
27,400
27,450
09-02-2015 11-02-2015 12-02-2015 13-02-2015 16-02-2015
16
Figure 5: One week’s gold rate movement in Ahmedabad (per 10 gms) (in Rs.)
Conclusion
Gold occupies a special place in the Indian economy. Apart from being acquired
for consumption purposes, it is also increasingly being preferred as an investment
class. Since domestic production of gold is close to negligible, almost entire
demand is met by imports which has exerted pressure on India’s current account
balance. Enabling India to become self-sufficient in gold by generating domestic
supply channels is therefore extremely crucial.
Approximately 22,000 tonnes of gold has been estimated to be lying with the
Indian households, in addition to the stock with the temple trustees. Efforts need
to be directed towards developing ways to mobilise and recycle the estimated
stockpile so as to create a domestic market for gold. Upgradation and
refurbishment of the domestic gold refinery and recycling infrastructure becomes
imperative in this context.
By launching ‘India Good Delivery based gold forwards, NCDEX plans to
encourage domestic supply of gold and stem the growing reliance on imports. In
the process, NCDEX also plans to standardise the domestic refineries through
accreditation as per international quality parameters. The forwards gold platform
will also be ideal for jewellers to help them efficiently manage their inventories.
The gems and jewellery sector in India is dominated by MSMEs34. Since the sector
is one of the major contributors to India’s exports, its growth is important for
India’s external sector. Creation of domestic supply of gold will also help such
MSMEs move up the value chain and receive a better pricing for their inputs
through transparent price discovery.
Effective monetisation of gold and creation of its domestic supply however calls
for appropriate policy response in both regulatory and monetary spheres. Banks
could also devise ways to spread greater awareness on the benefits of depositing
gold so as to mop up the ‘under the pillow’ stock currently lying with the Indian
households and temple trustees and put it to effective use.
9
34) “All that glitters is Gold: India Jewellery Review”, AT Kearney, FICCI, 2013
17
860 825
117
10
987
87.13
101
7
934
88.33
769
77
9
855
89.94
969
59
12
1039
93.26
2011 2012 2013 2014
Net imports, available for domesticconsumption
Domestic supply from recycled gold (a)
Domestic supply from other sources (b)
Total supply
Imports as a percentage of total supply
References
i. “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households”, RBI, Dec. 2013
ii. Gold Demand Trends, World Gold Council, Full Year 2014
iii. Gupta, S. et al, “All that glitters is Gold: India Jewellery Review, 2013”, AT Kearney and FICCI, November 2013.
iv. Jose, J. “Gold Refining Industry in India”, Association of Gold Refineries and Mints
v. “Why India Needs a Gold Policy”, FICCI, Dec. 2014
vi. Kanjilal, K., and Ghosh, S., “Income and price elasticity of gold import demand in India: Empirical Evidence from threshold and ARDL bounds test cointegration”, Resources Policy 41 (2014), 135-142
vii. Rosch, A. and Schmidbauer,H., “Impact of Festivals on Gold Price Expectation and Volatility”, FOM University of Applied Sciencies, Munich, Germany, 2012.
viii. Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans NBFCs in India, RBI, Feb 2013
ix. “Surveying the Indian Gold Loan Market”, Cognizant 20-20 insights, January 2012
x. Rangarajan, C., “Containing the Demand for Gold”, 6th International Gold Summit, The Associated Chambers of Commerce and Industry of India, New Delhi, May 2013
Appendix
Table 1: Supply of Gold in India (in tonnes)
Source: World Gold Council, Gold Demand Trends Report and GFMSNote: a) Domestic supply from local mine production, recovery from imported copperconcentrates and disinvestment. b) This supply can be consumed across the three sectors -jewellery, investment and technology. Consequently, the total supply figure in the table willnot add to jewellery plus investment demand for India.
18
Table 3: Domestic gold price (24 carat) derivation from the international price
as on 12th Feb. 2015
Table 2: Components of Gold Demand in India (in tonnes)
16
14
12
12
349
368
312
362
1,007
986
864
975
Dec-2010
Dec-2011
Dec-2012
Dec-2013
STEP 1 LBMA AM price of gold as on 12th Feb 2015
(in USD/Troy oz)
CONVERSION TO RS./KG (31.9899927)
RBI REFERENCE RATE on 12th Feb 2015
PRICE OF 1 KG OF GOLD (In Rs.)
CUSTOMS TARIFF VALUE for 12th Feb 2015
CUSTOMS DUTY
DOMESTIC SPOT PRICE ROUNDED OFF
(RS./10 GRAMS)
PRICE OF 1 KG OF GOLD INCLUDING
CUSTOMS DUTY
CURRENCY RATE BY CBEC FOR
IMPORTS/EXPORTS on 12th Feb 2015
STEP 2
STEP 3
STEP 4
Consumer Demand Investment Demand Industrial Demand
Source: GFMS, Thomson Reuters
Source: Author’s calculations
31.9899927
$412/10 GRAMS
62.45
10.30%
39195.73856
62.43
2446989.958
1225.25
2572940
265012.82
2712002.778
27120
Figure 1 : Demand Inelasticity of Gold in India
Source: GFMS, Thomson Reuters and Handbook of Statistics on the Indian Economy 2013 - 14
05000100001500020000250003000035000
0
200
400
600
800
1000
1200
Pric
e of
gol
d (R
s pe
r 10
gm
)
Gol
d D
eman
d (in
Ton
nes)
Consumer Demand Price of gold
19
20
Disclaimer: Trading in commodities contracts is subject to inherent market risks and the traders/investors should understand and consult their financial advisers before trading/investing. The contents in this publication are for guidance only and should not be treated as recommendatory or definitive. Neither NCDEX nor the NCDEX IPF Trust or their affiliates, associates, representatives, directors, employees or agents shall be responsible in any manner to any person or entity for any decisions or actions taken on the basis of this publication. No part of this publication may be redistributed or reproduced without written permission from NCDEX.
National Commodity & Derivatives Exchange Limited,
Akruti Corporate Park,1st Floor, Near G.E.Garden, L.B.S. Marg,
Kanjurmarg (West), Mumbai - 400 078
Tel.: (+91-22) 66406609-13 | Fax: (+91-22) 66406899
E-mail: [email protected]
CIN: U51909MH2003PLC140116
NCDEX Investor (Client) Protection Fund Trust
Issued in Public Interest