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India’s Slumping Gold Imports Are Bad News for Gold Investors

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Dec. 4 2020, Updated 10:50 a.m. ET

India’s gold imports fall

India imported gold worth $1.97 billion in June—a fall of 37% YoY (year-over-year). That’s quite low compared to a rise of 10.50% YoY in May. Imports in June also came in lower by 18.70%—compared to the previous month.

Traditionally, India and China’s physical gold buying has supported gold prices. When gold prices started falling in 2013 due to an ETF sell-off, the physical gold buying by these two consumers came to the rescue of gold prices.

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Looking ahead

The fall in imports is in line with our previous discussion of how India’s gold imports in June and beyond will be impacted by monsoon levels and the end of the marriage season.

The monsoons in India are expected to be below normal. Most of the rural population relies on agriculture or related activities. As a result, it’s strongly affected by monsoons. This population represents close to 75% of the total gold demand in India.

The absence of the marriage season or any major festival going forward a few months will also likely lessen the demand for gold.

India is the largest gold importer. The fall in gold imports is positive for the country’s current account deficit. However, any downtrend in physical gold buying by India could be negative for gold prices (GLD). This is especially true at a time when fundamentals including the strengthening US dollar and the anticipation of a Fed rate hike are keeping a lid on gold prices.

This will also be negative for 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 7.90% of GDX’s holdings.

Precious metals ETFs are large holders of physical bullion, so it’s important to track their buying and selling behavior. In the next part of this series, we’ll discuss precious metals ETFs and their holdings.

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