Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

SUMMARY AND POSITIVE FINDINGS
The amount of recycling is sensitive to gold price movements, the economic environment and personal stocks. In 1998, it
appears to have been closer to 35%. In the first 6 months of 2002, due to the rise in the gold price, recycling is reported
to have been 50% and more at times.
Important points: Recycling is much higher than normally reported. A small increase in recycling will impact a lot more on
net demand than on gross demand.
Gross fabrication of jewellery
When recycling is taken into account, the gross fabrication of gold jewellery increases dramatically. In 2001, when net
fabrication was 583 tonnes, an indicative (and conservative) estimate of gross fabrication is 955 tonnes.
Important points: Gross fabrication is much higher than normally reported. A fall in net fabrication (excluding scrap) does
not necessarily imply a fall in gross fabrication (including scrap).
Coin fabrication
Anecdotal evidence suggests that coin fabrication may have been as high as 35 tonnes. Some Indian analysts believe it may
have been more. The amount is an unresolved issue because there is no broad consensus among analysts.
Important points: Coins are widely viewed as intermediate products. More than 50% is expected to be converted into
jewellery over time.
Net bar hoarding
Anecdotal evidence suggests that the annual increase in net bar hoarding may have been small in recent years. In 2001, it
may have been as low as 20 tonnes (i.e. 3% of imports). There are several reasons. Owning TT bars is widely associated
with the underground economy. Jewellery is generally viewed as the best way to own gold.
There is speculative trading in TT bars, but residual net bar hoarding is regarded as low. Its extent is also reported to have
fallen since 1998. Significant quantities of TT bars may be bought to “park” black money, but retailers observe that the bars
would probably be held for a short period and would enter the jewellery market.
Important point: The amount of net bar hoarding is an unresolved issue because there is no broad consensus among
analysts.
Total market
The total market does not make structural sense, and trade comments also do not make sense, unless the extent of gross
demand is taken into account.
The indicative estimate of gross demand in 2001 is 1,053 tonnes. This is about 50% higher than normally reported.
It puts the high tonnages of industrial fabrication (4%) and coin fabrication (3%), as well as net bar hoarding (2%) into
perspective. Jewellery accounts for around 90% of the market.
It explains why there are around 300,000 gold jewellery outlets, 3 million active goldsmiths and ancillary workers, and 10,000
refiners.
It explains why net demand (i.e. imports) was able to fall so much more than gross demand in the first 6 months of 2002.
It also explains why so many Indian trade entities observe that the jewellery market is so much larger than normally
reported in the West.
Above ground stocks
Stocks at the end of 2001 are recorded at approximately 12,000 tonnes. 45% of the stock (5,300 tonnes) has been acquired
since 1990.
The 181 million families in India hold an average of 64 grammes of fine gold (around 85 grammes of carat gold). As 26%
of the population is below the poverty line, the top 50% would obviously hold substantially more than the average. At least
90% is held as gold jewellery.
Anecdotal evidence (at this time) suggests that around 5% may be held in the form of coins and bars. The net
accumulation of coins and bars is considered low as much appears to have been converted into jewellery. In addition, it
was illegal to fabricate coins or own bars during the Gold (Control) Act period.
AN INTRODUCTION TO THE INDIAN GOLD MARKET 19