Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

SUMMARY AND POSITIVE FINDINGS
Over the past 10 years, the difference between the Mumbai and London gold price has steadily narrowed. In 1990, the
Mumbai premium averaged 56%. In 2001, it averaged 9%.
PRICING AND PROFITABILITY
Bank importers normally mark-up imported TT bars by around 0.1%. Bullion dealers rely mainly on
movements in the gold price for their profitability.
Gold jewellery is typically retailed at a declared price ranging between 5 - 25% above the prevailing value of the gold
content. Retailers that sell gold jewellery with the correct caratage tend to have a gross profit (after fabrication costs)
of less than 10%. Wholesalers generate a gross profit of 2 - 3%. Most goldsmiths earn between Rs 4,000 – 15,000
(US$ 80 – 300) per month.
Small refiners can charge as little as Rs 10 (US$ 0.20) per 10 g to refine old gold jewellery. Coin fabricators charge
between Rs 20 – 60 (US$ 0.40 – 1.20) to make a 10 g coin. Retailers usually sell a 10 g coin at a mark-up of less than
Rs 50 (US$ 1.00).
GOLD MINING AND EXPLORATION
For 36 years (1957 - 1993), the mining of gold was nationalised under the Mines & Minerals (Regulation & Development)
Act 1957. A new National Mineral Policy was announced in March 1993. Alongside 12 other minerals, the mining of gold
was liberalised to include private initiatives.
Although annual gold mine output is only around 2 tonnes, there are many gold exploration projects. More than 20 million
tonnes of proven, probable and possible gold ore reserves have now been identified.
GOLD SUPPLY AND DEMAND
Movements in net supply and demand since 1990 fall into 2 broad periods.
• 1990 – 1997: High growth over 8 years. From 178 tonnes to 645 tonnes
• 1998 – 2001: Largely static market over 4 years. Ranging between 650 - 690 tonnes.
Why was growth so rapid between 1990 and 1997?
The restrictions on gold ownership during the Gold (Control) Act generated pent-up demand. Jewellery became more
accessible when the number of retailers increased from 16,000 to more than 200,000. GDP grew by 37% in real terms over
the period. Industrial production increased by 52%. Agricultural output was high over 1992-94 and again in 1996. Rural,
and especially urban, wealth increased. Gold could be officially imported. The rupee gold price rose slowly and steadily
each year (as it had done for decades) until 1996. In 1997, when the annual average price fell for the first time in decades
(by 12%), gold was viewed as inexpensive in a booming economy. The population also increased by 14% over the period.
Why did net demand remain static between 1998 and 2001 when there were so many positive factors?
For example, there was population growth of 6%, GDP increased by 26% and gold was less expensive because the gold
price, static in nominal terms, fell in real terms.
Jewellery retailers attribute static demand to several inhibiting factors. For example, the static rupee gold price weakened
gold’s investment dimension. Expenditure on lifestyle products increased at the expense of gold jewellery. Among large
retailers in major cities, the sale of diamond jewellery increased. More old gold jewellery was recycled. The rural economy
was relatively depressed.
To understand movements in net demand (i.e. imports) in the Indian gold market, it is necessary to have a
broad understanding of the size, nature and movement of gross supply and demand.
In summary, the research findings suggest the following:
• The recycling of old jewellery, coins and bars, the gross fabrication of gold jewellery, and the fabrication of coins is
higher than normally reported outside India.
• Net bar hoarding is less than normally reported outside India.
Recycling of old jewellery, bars and coins
The market is so complex and so variable by State, by rural and urban area, and by retailer, that any national estimate of
recycling can only be indicative. To try to obtain a precise estimate is just not possible.
Anecdotal evidence suggests that 40% or more of new jewellery sold nationally in 2001 may have been fabricated from old
jewellery exchanged for new jewellery or bought back for cash, or from old coins/bars. This means that for every 1,200 kg
imported, 800 kg of old gold was recycled.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET