India's Gold Coin Sales Resume, China's Creepin' as Biggest Consumer

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Precious Metals

Sale of gold coins resume in India even as festive demand slides; China likely to bypass India as largest consumer

Gold is back in focus in India, more specifically, gold coins. A few months after jewelers across India had decided to adhere to the Finance Minister’s appeal of not manufacturing or selling gold coins, most have decided to go back on that decision.

After suspending the sale of gold coins for nearly four months since July, jewelers have decided to once again to start offering gold coins of smaller denominations for sale. There are many reasons for this.

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Unlike earlier times, sales are down this festive season. Another reason being that the government is yet to decide on a replacement of the 20:80 policy on gold imports that has made supply through banks difficult in the country.

Under this, if a nominated bank imports 100 kg of gold, then 20 kg needs to be held in a bonded warehouse. The bank can import further only when it releases 15 kg for exports. The scheme is primarily aimed at promoting exports. Under the policy, dealers have to export 20 percent of what they imported as finished jewelry.

India, one of the largest consumers of gold, has seen the implementation of controls on imports and three tariff increases this year. The country’s total gold consumption was around 900 tons a year. All of this has led to a steady increase in gold smuggling into the country.

The government’s moves vis-a-vis the procurement and sale of gold in India have been to stop the ever-increasing current account deficit and the falling value of the rupee against the US dollar. That was also the reason why India’s Finance Minister P. Chidambaram had advised jewelers against selling gold coins.

According to a report in The Economic Times, Haresh Soni, Chairman, All India Gem & Jewellery Trade Federation (GJF), was of the view that members were advised to re-start selling coins as jewelers had appealed to do so during the ongoing festive season. Jewelers have started selling smaller denominations of coins – 2 grams, 3 grams and 5 grams.

China Gaining Ground

The World Gold Council has already said that strict rules on gold imports were curbing demand from India, and the nation was likely to lose its crown as the world’s biggest consumer of the precious metal to China.

Already, sales on the festive day of Dhanteras earlier this month were reported to be down by 50 percent, and could impact the overall sales in the entire festive season.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

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