DEMAND AND SUPPLY

ANALYSIS OF GOLD IN
INDIAN MARKET

GOLD
Gold is an element and a mineral. It is highly prized by people
because of its attractive color, resistance to tarnish and its many
special properties - some of which are unique to gold. Its rarity,
usefulness and desirability make it command a high price.
Trace amounts of
gold are found almost everywhere but large deposits are found in
only a few locations. Although there are about twenty different
gold minerals all of them are quite rare.

DEMAND OF GOLD FOR

Jewelry which accounts for the largest proportion

of gold demand.
Investment demand (which consists of total bar
and coin and gold-backed ETFs and similar
products);
Technology/manufacturing.

India & Gold

Gold as a symbol of
purity, prosperity and
good fortune.

India produced approx.

only 2.488 metric tons &
imported 975 metric tons
of gold in 2013.

Over 13 per cent of

household savings is in
physical assets like gold.

SUPPLY

Gold supply comes from these sources:

Mine production and net gold hedging
Recycling of gold.

MINE PRODUCTION
Global mine production
increased by 16.2% from 2,498
tonnes in 2007 to 2,861 tonnes
in 2013. New supply has been
partly spurred by the sharp
increase in the gold price, which
more than doubled between
2007 and 2013.
Mines in the top 15 gold
producing countries extracted
2,177 tonnes of gold in 2013,
76% of the world total.
The six largest producers, China,
Australia, the United States,
Russia, Peru and South Africa,
extracted more than half of the
gold mined globally.
The key growth areas for mining
in recent years include China
and Mexico: Chinese gold
production increased by almost
half (47%) between 2007 and

Recycling of gold
Recycled gold refers to gold sourced from previously fabricated
products that is subsequently refined back.
Recycling accounts for around one third of the total supply of gold
(2012 - 37% of the global supply of gold). The output of recycled gold
has increased by 60% since 2007. This supply response has been far
more significant than in mine production, where development lead
times and other barriers limit rapid responses.
The recovery of gold from previously fabricated products destined for
recycling is more likely to occur in countries with high gold
consumption as this provides a ready source of material and, as a
result, gold recovery activity is not tied to geological conditions in the
same way as mine production.

India
The Indian gold market is fed by a number of alternative sources,
including recycled gold, domestic production and unofficial imports
Recycled gold in India rises 44.5% to 61.3 tonnes(Q3 2013). when the
supply side was constrained due to government policies, 61.3 tonnes
of old gold were offloaded by Indians. They took advantage of the

Market trends in gold

prices

The high import duty and supply curbs on gold had a telling effect on demand for
gold in the first quarter of calendar 2014 when demand slid 26 per cent to 190.3
tonnes.
Gold demandin India for the second quarter of 2014 calender year declined by 39
per cent to 204.1 tonne compared to the overall demand in the same quarter last
year according toWorld Gold Councilreport.

The price of 10 gm of gold in the year

1964 was ` 63.25 whereas in the year 2012 was ` 31,050. The gold price of 10 gm in
December 2013 was 29,600. Initially the increase in gold price was less from year to
year but there is a drastic increase in the recent years. In the past decade, the
increase in gold prices has been notable. However, a sudden jump in the price from `
18,500 ininfluencing
2010 to ` 26,400
in 2011 is an astonishing increase.
Factors
gold prices

Gold has always been an object of desire. Individuals seek it out for personal
wealth and security. The value of money appeals above all other appeals in our
world.
The following are the factors which are influencing gold prices:
Demand of gold
Inflation
Import duty
Behavioral reasons
Value of US dollars
Interest rates offered by banks

Effect of gold rush on Indian economy

Gold is an integral part of our lives in India. India accounts for more than 30
per cent of the global gold market. However, the domestic production of gold
in India is minimal. India meets the high demand of gold from its domestic
consumers by importing it
However, as per the statistics of Gold Council, jewelry accounts for nearly 75
per cent of the gold demand in India. When we compare this consumption rate
with the global scenario, even the second largest importer of gold, i.e., China
lags by more than 30 per cent in terms of consumer demand. The high
consumption rate of gold among Indians is unproductive for the Indian
economy.
The following facts related with gold affect the growth of Indian economy:

An unproductive
investment

Gold imports are

weighing down the
economy

Deprives
financial markets
of funds

Widens current
account deficit

Current account deficit

CAD represents the difference between Indias imports of goods and services and its
exports plus remittances by Indians living abroad.
The nations CAD, which reached a record 6.7 per cent of GDP in three months ended in
December 2013, was widely considered the biggest concern for Asias second largest
economy.
The government increased taxes on gold imports in the worlds second-biggest user of the
metal three times last year to help pare a trade imbalance that has weighed on the rupee.
The currency has gained about 11 percent since reaching an all-time low on Aug. 28
Gold imports constituted a
substantial chunk of the imports and
is a huge drain on the Current
Account..

dias gold import against total imports

US$ MILLION)
Year
Gold
Total
Percent
Import
Import
age
Share
20112012

55962.3

489487.
5

11.44

20122013

61409.9

491487.
2

12.50

Action taken by the Central government

The government has tried to tackle the problem, raising import taxes and
considering changing regulations so that less gold comes into India via the
banking system
In August 2013, the finance ministry had banned banks from selling gold
coins in order to contain the countrys burgeoning CAD.
Gold imports are estimated to have declined by 41 per cent to 500 tonnes
in 2012-13 financial year on account of curbs imposed by the government.

Action taken by the RBI

The Reserve Bank of India (RBI) thinks that a CAD of 2.5 per cent of the
gross domestic product (GDP) is sustainable. Against this, Indias CAD in
2011-12 was 4.2 per cent of GDP and in the last quarter for which data is
available, October- December 2012 was 6.7 per cent of GDP. The greater
the gap between the sustainable CAD level and the actual figure, the
more vulnerable the economy is to adverse global developments which could
suck out foreign investment.
On the quantitative front, RBI introduced the 80:20 formula un- der which
80 per cent of imports would be for domestic demand while 20 per cent
of total imports would have to be re-exported through value additions in the
form of jewelry.