Indian Households Hold More Gold Than the World’s Top 10 Central Bank Holders Combined

Households in India may have piled up around 24,000-25,000 tonnes of gold, remaining the world’s largest holders of the precious metal, Somasundaram PR, managing director (India) of the London-headquartered World Gold Council (WGC), has told FE. At Friday’s international price, the value of the holdings (25,000 tonne) would be as much as $1,135 billion, or equivalent of more than 40% of India’s nominal gross domestic product (GDP) in FY19.

Factoring in the central bank’s reserves (608.8 tonne) and an import duty of 10%, the domestic value of the gold stocks at most of the known sources in the world’s second-largest consumer will be even higher. [Chinese households buy even more gold per year but their stock is half that of the Indian one.] Despite subdued demand in recent years [“subdued” only by Indian standards], gold holdings have accumulated over the decades, thanks to the traditional penchant for the precious metal.

“We conducted a study two years ago and found the household stocks at around 23,000-24,000 tonne. Now, the stocks may have touched 24,000-25,000 tonne,” Somasundaram said. This reinforces the potential of the government’s gold monetisation scheme, provided it’s made more lucrative and rolled out with better infrastructure, analysts say.

However, the gold schemes (monetisation, bonds and sovereign coins) launched in late 2015 haven’t yet generated the desired response. Mop-ups through all these schemes represent just about 2% of the country’s annual consumption. With renewed push, though, the collection can go up.

The schemes are part of the broader government effort to curb “non-essential imports” and contain their impact on both trade and current account deficits that exert pressure on the rupee. [Ie the demand remains strong even though the government hates the purchases and is trying to limit them.] Since gold already attracts a 10% basic customs duty, and any move to raise it to discourage imports is fraught with risks of higher smuggling.

Indian gold demand rose 5.2% from January to March, against a marginal fall in the previous quarter, but it still trailed a 7% rise globally, showed the latest World Gold Council (WGC) data. The Council now forecasts 2019 Indian demand at 750-850 tonne compared with 760 tonne in 2018.

“The strengthening of the rupee and the fall in local gold prices towards the latter part of the quarter triggered a rise in India’s gold demand by 5% in Q1 of 2019 to 159 tonne,” Somasundaram said. Looking ahead, gold demand will likely improve in the June quarter owing to traditional wedding season buying, the Akshaya Tritiya festival and rising crop prices, he added.

In addition, the weather department has forecast a normal monsoon this year, which augurs well for the rural economy and gold, he said. The country’s gold demand was shaken after demonetisation in November 2016, as many customers feared a crackdown on gold holding, considered by many as one of the instruments to park of black money.

While gold demand has recovered from a seven-year low of 666 tonne in 2016 to 760 tonne in 2018 [first among central bank buyers Russia bought only a third as much], it’s still far from as much as 963 tonne in 2010. While the main driver of the Indian demand will continue to be jewellery, consumption of bars and coins is expected to be higher in 2019 than a year earlier.