Gold Jewelry Demand in India Improves

By: Frank Holmes | Tue, Aug 26, 2014
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Those who root for gold root for India. Despite a welcome June rally, it's been a rocky second quarter for the world's second-largest consumer of the metal, with demand down 18 percent compared to last year.

But consumer appetite seems to be on the upswing following a tepid July. Gold premiums rose to between $10 and $13 a troy ounce this month, compared to zero last month. Such premiums are good indicators that buyers are willing to spend more on gold jewelry and other forms of bullion.

That premiums have risen also suggests that Indians are making their gold purchases ahead of Diwali, or the Festival of Lights, a traditional time to participate in what I call the Love Trade. This year Diwali begins on October 23.

Other global celebrations and events that trigger the Love Trade include the Indian wedding season, the Chinese New Year, Ramadan and, of course, Christmas.

Gold: Annual Seasonal Cycle


Challenges Affecting Demand

Government policy and temperamental weather are mostly to blame for gold's less-than-satisfactory performance in India.

The recent election of Narendra Modi, who rules the pro-business Bharatiya Janata Party, had the global market hoping he would remove gold import duties. Unfortunately, the duty remained unchanged in the new government's July budget. It's my hope that the Modi administration will rethink this policy and ease the restrictions.

A slow start to the annual four-month monsoon season, beginning in June, also affected sales. Much of the country's gold demand comes from rural households, especially farmers, whose summer crops depend on monsoon rains. Rural Indian households typically devote between 7 and 8 percent of their income on gold, but disappointing crop yields have no doubt cost them earnings.


A Golden Heritage

As it does in many other cultures, gold has a rich tradition in India, where people have been wearing gold jewelry for about 4,000 years. In ancient Hindu epics such as the Ramayana and the Mahabharata, gold is associated with godliness and kingliness, a sentiment millions of Indians still harbor to this day.

A 2012 World Gold Council survey, the results of which are shown below, stresses the high level of importance Indians place on the metal--as a financial asset, fashion accessory and cultural identifier.

Attitudes to Gold Jewelry in India

The rupee gold price might have risen 320 percent in the last 10 years, but because gold plays such a vital role in the country's heritage, appetite for the yellow metal remains robust.

 


 

Frank Holmes

Author: Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron's, The Financial Times and other publications.


Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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