India’s gold imports
India imported 63 tons of gold in May compared to 85 tons in April. In terms of value, that’s $2.42 billion, an increase of 10.5% year-over-year. That’s very low compared to a rise of 78.3% year-over-year in April.
Imports in March were even higher at 125 tons. Easing of restrictions by the Reserve Bank of India and declining gold prices were the major reasons for the surge in gold imports. Gold import growth has been positive in India since August 2014.
Traditionally, India’s and China’s physical gold buying has supported gold prices. When gold prices started falling in 2013 due to an ETF sell-off, physical gold buying by these two consumers came to the rescue of gold prices.
India’s gold imports in June and beyond will be impacted by monsoon levels. There’s a below-normal forecast for monsoons in India at the moment. Most of the rural population relies on agriculture or related activities and is thus strongly affected by monsoons. This population represents close to 75% of the total gold demand in India.
The marriage season in India came to an end in May. This is also likely to lessen the demand for gold going forward.
Any downtrend in physical gold buying by India could be negative for gold prices (GLD) and gold equities, including Eldorado Gold (EGO), Gold Fields (GFI), Sibanye Gold (SBGL), and Yamana Gold (AUY). ETFs that invest in these stocks, including the VanEck Vectors Gold Miners ETF (GDX), could also be affected by diminishing demand. Together, Eldorado Gold and Yamana Gold account for 7.9% of GDX’s holdings.
In the next part of this series, we’ll take a look at gold ETF holdings.