“India’s Gold Market: evolution and innovation” examines the entire gold supply chain and the drivers for future growth

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The World Gold Council today launched the report titled ‘India’s Gold Market: evolution and innovation’. This report explains the entire supply chain for India’s gold market– from imports and recycling through to consumer demand – and how it is likely to develop in the coming years. It also provides an overview of existing gold-related policies and how they have evolved over recent years.

The report highlights that over the long-run economic growth is the main driver of India’s gold demand. India was one of the world’s fastest growing economies in 2016 and it is this growth that supports the Indian gold market. The shape of the market is changing, too. While India’s gold industry is still highly fragmented, it is becoming more organised. Retailers with large regional and national chains are gaining market share. These firms have sophisticated inventory management, well-crafted advertising campaigns and will be important in ensuring gold meets the needs of modern consumers.

India’s gold market has been subject to many different policies since Independence, some of which have been disruptive. This report highlights how gold is integral to India’s way of life, makes a positive contribution to society and will allow policymakers to take a hosltic view of the gold market to inform policy decisions.

Somasundaram PR, Managing Director, India, World Gold Council said; “Currently, policy discussions tend to focus overwhelmingly on import controls, thereby under-leveraging the strengths of a gold culture that is core to Indian society. We want the positive role of gold in household finance and the benefits of making it mainstream to be better appreciated and acknowledged in policy making. Policies that enable gold to operate freely in a transparent manner, as part of the organised financial system, are important to realise the broader social and economic objectives. We hope this report provides the data and insight from which effective policies can be developed and India plays an active role in the global gold market commensurate with its appetite for gold.”

Alistair Hewitt, Director, Market Intelligence, World Gold Council said: “The key insight for me is that India’s economic growth has underpinned its gold market. In 2016 India was one of the world’s fastest growing economies. While the economy was rocked by the shock demonetisation programme, it will bounce back and that will support the gold market in years to come. Given that the outlook for income growth is positive, by 2020 we expect Indian gold demand to average 850t to 950t per annum.”

Some key insights from the report are highlighted below –

Demand responds more to income than it does to price. Our econometric analysis of data from 1990 to 2015 revealed that income levels are the most significant long-term determinants of consumer gold demand: holding all else equal, a 1% rise in income boosts gold demand by 1%.
Income is the most powerful factor, and income levels are expected to rise. The IMF has forecast per capita GDP to grow by 35% for 2015–2020 and the National Council of Applied Economic Research expects India’s middle class to double, exceeding 500 million (m) by 2025.
The report states that, valued at over US$800bn, India’s gold stocks are around 23,000-24,000 tonnes. Southern India has the highest market share for gold demand of 40%, Western India at 25% and Northern and Eastern India have 20% and 15% of the market share respectively.
Gold jewellery plays a dual role in India – as an investment as well as an adornment, hence a considerable number of Indians invest in gold through 22k jewellery. Given that weddings are a key occasion for buying gold and the fact that 500m of the population is under the age of 25, the number of weddings and subsequently the occasions for buying gold are likely to be higher. The outlook for jewellery demand is favourable.
We estimate there are between 385,000 and 410,000 jewellers in India. The majority – around 70% – of India’s jewellery industry can be categorised as unorganised. Between 2000 and 2015 more organised participants emerged, with their market share rising from 5% to 30%.  By 2020, it is likely that this share will have risen to between 35% and 40%.
For many investors, bars and coins are considered a safe investment and rank alongside deposit accounts as a preferred savings vehicle. By 2020, the report indicates that, bar and coin demand will be between 250–300 tonnes.
Consumers prefer to pledge jewellery or bullion as collateral to raise funds rather than selling them. Around 1,250 tonnes is used as collateral, largely with informal lenders, such as pawnbrokers. The report states that gold loans will continue to hold a bigger market share in India. Owing to the government’s encouragement to the formal sector, money-lenders and pawnbrokers, will lose market share to banks and gold loan companies.
India is reliant on imports and recycling to meet gold demand. Gold imports account for around 85% of total supply, and the refining sector plays an important role in taking these imports and putting them in a form suitable for India’s gold industry. Indian gold refining capacity jumped in recent years from a mere three or four refineries in 2013 to 30 in 2015, taking the total capacity above 1,450t.
India is one of the largest gold jewellery exporters in the world. In FY2015–2016, Indian gold jewellery shipments came to US$8.6bn.
Full report can be downloaded from www.gold.org