What do Indian gold market changes mean for U.S. price?

We are soon entering a propitious period for gold in the annual calendar. 

Historically, prices have moved higher as gold traders and buyers returned from their summer holidays. 

In reality, it has been the approaching Indian holiday, wedding, and agricultural harvest seasons that have boosted gold demand and supported higher prices in world markets as summer draws to a close. 

Until last year, India was the largest consumer of gold in the world market, but thanks to the imposition of gold-import barriers by the Indian authorities and the surge in Chinese demand, China rose to the top spot and India trailed behind. Nevertheless, India remains a major player holding much sway over the world price. 

With discouraging import duties and other anti-gold trade barriers still in place, it remains to be seen this year whether or not India will provide its usual seasonal boost to gold demand and prices in the world marketplace.

I expected India’s new government would move quickly to roll back the ten percent tax on gold imports and abolish other barriers to the gold trade, but so far, it has failed to provide any relief to bullion importers and the related jewelry and gemstone industries. 

Relief will come sooner or later, perhaps even by September or October. Indian authorities now wish to discourage smugglers (who last year may have smuggled as much as 200 tons into the country) and to relieve the bullion, jewelry, and gem industries, an important political constituency that has been harmed by the restrictions on gold importation. 

A rollback in import restrictions and a surge in Indian gold consumption, whenever it comes, could be sufficient to jog the world gold market into high gear, triggering resumption in the long-term gold-price upswing. In any event, with or without a rollback in India’s barriers to free trade in gold, demand for gold in that populous nation will be rising in the months ahead, offering support to the metal’s world price.

 

About the Author
Jeffrey Nichols

Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital, has been a precious metals economist for over 25 years.

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