After the import curbs came the Fed. Next will come Chaturmas. Might this 'closed season' for Indian weddings finally stem the subcontinent's frantic gold buying this summer?
It usually does. All Asian gold demand tends to ease off mid-year, but India goes dead quiet, thanks to the lack of auspicious days on the Hindu calendar. 2013's Chaturmas – literal meaning, "four months" – starts in mid-July. Although it starts later and is shorter than in 2012, the shutdown for Indian weddings will still run until early November as the Hindu gods and goddesses enjoy their Yogi Sleep.
Lord Vishnu deserves a rest after the frantic gift-giving and wedding demand for gold seen so far this year. Chaturmas should also enforce a truce between Indian households – the world's No.1 gold consumers – and their government, now one of the world's most anti-gold administrations.
Hiking gold import duty to 8% last month, and imposing strict new rules on how gold imports can be financed (no credit, in short), the government has still met record levels of gold demand. To their mind, that has only worsened a problem hitting emerging markets everywhere: a sudden outflow of foreign cash, spooked by chatter about the US Federal Reserve daring to slow its rate of money creation. Or maybe even raising interest rates from zero. At some point. Perhaps.
The effect on what were the world's hottest investment hotspots has been dramatic. Mass protests in former darlings Turkey and Brazil come as Western fund managers hold their lowest allocations to developing economies since the Lehmans' crash of 2008. China looks to have all but stopped buying US Treasury bonds, thanks to slowing inflows of cash needing a home, plus the sudden need to keep money at hand as Chinese credit dries up. India's latest curbs on gold imports were supposed to buoy the Rupee (everyone said so), but it has sunk to new all-time lows on the currency markets regardless.
Well, not quite regardless. The world's biggest gold buyers, Indian citizens boast zero mine output. So pretty much every ounce bought for weddings, festivals and the 10% of household savings which go into gold each year must come from abroad. The government warned time and again it wanted to curb those gold imports, because they dent India's current account deficit so badly that they hurt the Rupee. So mid-April's gold crash was already preceded by a sharp upturn in buying. Because people who love buying gold love buying it now if they know supply will be capped tomorrow.
The Rupee's slump has only made gold more expensive. But wholesalers, if not final consumers, kept buying gold anyway. Even the end of credit-paid imports failed to dent May's surge in demand. So far, all the new 8% duty has done is spark warnings (and reports) of increased smuggling, with Dubai only a short trip away by dhow overnight. Still, the Hindu wedding season – for which tradition demands heavy gift-giving in gold – is set to end mid-July. Thanks to Chaturmas, it won't resume until after the festival calendar starts again in September. A bit like Lent for vegans, it bans the eating of certain leaves, fruit and tubers as the gods take their rest. And all else being equal, India's summer vacation from bullion also helps to cap gold prices worldwide.
On a monthly basis, over the last 45 years, the Dollar gold price rose 2.2% annualized between June and September on average. The annualized rise between September and May was 14.8%. Sure, Western fund managers following the "Sell in May" motto also helps flatten the action. But internal to gold's supply and demand balance, Chaturmas removes the No.1 consumers.
From the Gregorian calendar, however, Chaturmas is a moveable marriage ban. And all told in 2013, Hindu observance allows nearly 25% more wedding days than it did in 2012 according to this chart from Kotak Mahindra Bank's Shekhar Bhandari, speaking last year at the LBMA conference in Hong Kong. The summer lull in Asian demand is delayed, in short, and wedding gift-giving will start again sooner. And failing to curb demand so far in 2013, India's government hasn't even managed to beat a rise in supply, thanks both to people's continued love (and need) for hard asset savings (Indian households have seen gold rise vs. Rupees in 30 of the last 39 years), and more recently to spring 2013's global gold discounts.