Gold Imports Cross $5 billion in September 2021

The month of Sep-21 saw a surge in gold imports which was one of the key factors triggering a spurt in merchandise trade deficit for Sep-21 to an all-time high of $23 billion. For September, the total gold imports stood at $5.1 billion; a growth of 750% from just $601 million in September 2020.

Even in volume terms, the total gold imports in Sep-21 stood at 91 tonnes compared to just 12 tonnes in Sep-20. Total gold imports for the quarter ended Sep-21 were 170% higher YoY at 288 tonnes. This surge in imports was an outcome of lower gold prices and higher stocking by jewellers ahead of the year-end festive demand for gold.

India has been the second largest consumer of gold after China for many years now. This year, the prices of gold have fallen 15% after scaling a high of $2,072 per troy ounce in the global market. Lower gold prices encouraged heavy stocking demand by jewellers in India. With the rupee relatively stable, the local gold prices also fell in tandem with global prices.

Local gold prices in the Mumbai market has been around Rs.45,500 per 10 grams compared to Rs.56,000 per 10 grams at the peak last year. That is because, gold has normally been a safe haven asset and tends to underperform when growth in the economy is reviving  and the equity markets are outperforming. Lower prices have driven gold demand.

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In the current festive season in India stretching from Navaratri in October, to Christmas in December, India is expected to report 35-40% of full year jewellery sales. That is why the festive months become important leading to aggressive stocking of gold by the jewellers. That has resulted in this surge in gold imports.

However, the RBI is not too comfortable with high gold imports as it means precious foreign exchanges gets used up for gold, which is considered an unproductive asset. In the past, the government had imposed quotas and duties to curtail the imports of gold. With its implications for the rupee and the trade deficit, it remains to be seen how the RBI and government react to this surge in gold demand.