Is India Now Irrelevant to the Gold Market?

With the exception of the 4^th quarter of last year, Indian gold-buyers – once the cornerstone of global demand – have virtually disappeared from the global gold market.

As most will recall, during the 4^th quarter of 2008, a Wall Street-engineered market “crash” (and subsequent panic) caused a brief plunge in the price of gold, to a low of less than $800/oz U.S. During that quarter, Indian gold-demand surged 84% over the same period in 2007. This is no surprise, as Indian buyers are legendary for their “price sensitivity”.

In the past, this has served them well, as they have managed to shrewdly buy most of their bullion during market troughs. However, for numerous reasons, those days appear to be gone for good – meaning that Indian gold-buyers are simply pricing themselves out of the market, while record-demand in most of the rest of the world keeps the price of gold above $900/oz (and clearly poised to set new, record-highs).

Indeed, some sources suggest that India was actually a net exporter of gold in February and March of this year (see “Indian gold EXPORTS holding down price temporarily”). With these months usually being a time of strong demand from India, there were countless “gold bears” predicting a dramatic plunge in the price of gold.

As I explained in a more recent commentary, those “bears” are simply living in the past (see “Gold demand driven by investment...PERIOD!"). Indian demand is officially classified as “jewelry demand” (although in reality, while Indian gold is bought in the form of jewelry, it is clearly purchased as an investment). While jewelry demand fell by a modest 6% in 2008, retail investment demand increased by nearly 400%.

Meanwhile, state purchases of gold are also soaring. Russia has been a net buyer of gold for many months. China recently announced it had increased its gold reserves by 76% since 2002, becoming the 5^th largest holder of bullion. This has been backed-up by smaller purchases by assorted other nations around the world – even the European Central Bank was briefly buying gold.

This strength in both the demand for gold and the price for gold comes despite a frantic effort by the Manipulators to drive gold lower. “Lease rates” have been kept negative, meaning that at a time of record demand for gold, the Wall Street banksters who lead the anti-gold cabal have been paying people to borrow (and “short”) gold.

This is one of the many outrageous acts by these criminals which conclusively demonstrates the overt manipulation of the gold market, but naturally the corrupt, U.S. regulators at the CFTC continue to simply 'look the other way' – as they have been doing for more than a quarter century.

Added to this, the Manipulators have been getting the U.S. propaganda machine to announce (and “re-announce" the supposed sale of 400 tons of IMF gold. This one “sale” has been trumpeted by the propagandists on at least three or four separate occasions over the last year (since the original announcement), despite the fact there has never been final approval for such a sale, and not one ounce of gold has left IMF vaults.

Part of the problem for the Manipulators is that they have already depleted much (most?) of the bullion-holdings of the European patsies (such as the U.K.'s Gordon Brown) who have back-stopped their multi-decade campaign of price-fixing. Now those sales are trickling steadily lower, as there is an increasing public backlash over squandering the one valuable asset in their currency reserves.

Thus, the loss of Indian gold buying has largely been negated by the reduction in European gold dumping. This leaves the explosion in retail and sovereign demand as the driving force in this market.

While refusing to buy gold at even the current, depressed price, there is increasing anecdotal evidence that Indians are switching to less-expensive silver, where the Manipulators have been more successful – at the moment – in their price suppression (see "Silver Manipulation the worst in history - Ted Butler"). However, the potential impact of a surge in Indian silver-buying is another story (and commentary?).

Comments

[History Buff 24/7]

If there is in fact manipulation going on (which I believe most rational people would accept considering all the circumstantial evidence) than an unintended side effect is that the central banks of the Western economies have been gifting the countries that are buying gold with irrationally low rates (presumably Russia, the Gulf Countries, perhaps even some stealth moves by China although many think they are merely hoarding their own gold production instead of selling it on the open but rigged markets).

If so, this will go down in history with Gordon Brown's sale of much of the UK's gold at the insanely low price of $250 as an extremely boneheaded manoever.

There is a price to pay for manipulation when it fails.

I believe silver will have its day as well. If gold goes through the roof I don't think the bizarre gold/silver ratio of the last year will be maintained either.

2009 May 15 10:24 AM

[Jeff Nielson]

Yes, History Buffs - governments can still buy cheap, and so can we. However, buy ONLY "real", physical gold (and silver) and NOT the fraudulent, bullion-ETF's.

Bullion-ETF's were created to FOOL small retail investors into buying "paper", while the "smart money" buys actual gold and silver. These ETF's (with a few, small exceptions) do NOT hold "bullion" - only "paper promises".


On May 15 10:24 AM History Buff 24/7 wrote:

> If there is in fact manipulation going on (which I believe most rational
> people would accept considering all the circumstantial evidence)
> than an unintended side effect is that the central banks of the Western
> economies have been gifting the countries that are buying gold with
> irrationally low rates (presumably Russia, the Gulf Countries, perhaps
> even some stealth moves by China although many think they are merely
> hoarding their own gold production instead of selling it on the open
> but rigged markets).
>
> If so, this will go down in history with Gordon Brown's sale of much
> of the UK's gold at the insanely low price of $250 as an extremely
> boneheaded manoever.
>
> There is a price to pay for manipulation when it fails.
>
> I believe silver will have its day as well. If gold goes through
> the roof I don't think the bizarre gold/silver ratio of the last
> year will be maintained either.

2009 May 15 11:57 AM

[Chandragupta]

Even the Indian buying has only PAUSED, it has not stopped, and will resume soon.

Most of the Gold in India is imported. The Indian Rupee depreciated nearly 25 % to the US Dollar between end - 2007 to end - 2008 / early 2009. This magnified the increase in gold price in the Indian market, causing it to reach an all time high (in Indian Rupees). But now, the shock effect of the high gold prices is wearing off, and prices previously considered 'high' will appear 'low' now. Foreign Inflows to domestic stock markets have resumed, causing Rupee to appreciate. The combined effect of this is that it is bringing in more and more buyers at every correction.

2009 May 15 12:29 PM

[silverwood]

Jeff good post, looking at a chart of the Indian Rupee gold price, which is what our Indian freinds look at when buying gold, shows me that in early Feb. 09 gold made an all time high in Repee. So yes Indain gold buyers are selling into strenght. Price has come down some and after a consolidation the indian buying should resume. You can reference this chart here...www.kitco.com/gold_cur...

2009 May 15 12:35 PM

[altaman]

When the Indian economy starts a solid recovery, which will happen long before the US economy even stops going down, their demand will just be thrown on top of all of the other sources of demand and drive gold ever higher.

2009 May 15 03:39 PM

[Fighting Yoda]

India is the largest consumer and importer of gold - so its demand is extremely important. India consumes gold - jewelry and stuff not just invests - it does not recycle - so gold ends in a black hole there - that is very important demand. India typically imports 150+ Tons a quarter, 1st Qtr of this year it was a net exporter by about 70 Tons - first time in a very long time.

Yes the price of gold has fallen in Indian Rupee terms - so likely demand would pick up from India. But based on commodity reports - demand is still below normal.

2009 May 15 04:25 PM

[Jason Hamlin]

Thanks for the article. It would be really helpful to quantify the demand sources that you reference. Saying what percentage investment demand or jewelery demand increased or decreased does not give the true picture.

The key question is: Does the number of ounces from increased state and investment demand offset the number of ounces from decreased jewelry demand?

If the answer is yet, the price of gold should continue to rise. If the answer is no, I would expect downward price pressure.

Thoughts?

2009 May 16 02:32 PM

[Jeff Nielson]

Hi Jason. As a BIG silver fan, I've read a lot of your stuff.

I actually dealt with the numbers in one of the commentaries which I provided links for: “Gold demand driven by investment...PERIOD!"

The numbers (from the World Gold Council, 2008) showed "jewelry demand" (which includes India) slipping by 6%, while total "investment demand" increased by over 180%, and "RETAIL investor demand" increasing by just under 400%.

So, as you can see, the jewelry component of gold demand is no longer a "driver" of the gold market. What moves the market (or, at least, what SHOULD move the market) is retail investment demand and sovereign demand.


On May 16 02:32 PM Jason Hamlin wrote:

> Thanks for the article. It would be really helpful to quantify the
> demand sources that you reference. Saying what percentage investment
> demand or jewelery demand increased or decreased does not give the
> true picture.
>
> The key question is: Does the number of ounces from increased state
> and investment demand offset the number of ounces from decreased
> jewelry demand?
>
> If the answer is yet, the price of gold should continue to rise.
> If the answer is no, I would expect downward price pressure.
>
> Thoughts?

2009 May 16 04:04 PM

[5142152-337]

I was surprised to see your article, Jeff. I guess you DON'T SLEEP!!! Terrific, better for us who need to be enlightened. Thanks for the article!

India will now learn the lesson that all of us here (posters) know: Buy gold (and silver) and wait. Don't wait to buy gold (and silver)!!!!!

Appreciate your commentary about the greedy elitist b.....d manipulators, and the CTFC whose in bed with them. It can NEVER be said enough! I await the day their baloon busts. The needle cometh!

2009 May 16 06:41 PM

[Clint007]

The main difference between China and India, China buy Gold as money.
India, it is mainly for "family Jewell".

Keep the good work Jeff. Nice work on all your post.

2009 May 17 08:59 PM

[Jeff Nielson]

Hi Clint. I was reading another article about India's gold market. The author pointed out that the vast majority of India's peasant-population has no access to banks.

Therefore, the gold and silver jewelry they hold and wear is either an "investment" or simply a "bank account". I do agree with though, about China's buyers viewing their gold and silver more as "investments".


On May 17 08:59 PM Clint007 wrote:

> The main difference between China and India, China buy Gold as money.
>
> India, it is mainly for "family Jewell".
>
> Keep the good work Jeff. Nice work on all your post.

2009 May 18 05:58 PM