India - Market Introduction

Markets | Jewellery | Who's Who

Introduction

India is the world's largest consumer of gold. According to GFMS, in 2001 it absorbed around 700 tonnes (22.5 million oz) from the world market, compared to just 320 tonnes (10.29 million oz) in 1994; that is without taking into account the recycling of scrap from the immense stock of close to 10,000 tonnes (321.5 million oz) built up on the sub-continent in the last few hundred years, or gold imported for jewellery manufacture and re-export.

An historical perspective is useful in understanding why India has been for so long, and still is, a great market for gold – and also for silver. India, the saying goes, has always been 'a sink for precious metals'. Both metals are closely woven into the social fabric, especially in the rural areas where they are the basic form of saving.

Ever since Roman times the 'east' has been a source of silk and spices, and later diamonds, tea and cotton, sought by Mediterranean and European merchants. The first gold ducats struck by the mint in Venice in 1285, which became a staple form of international payment for over three hundred years, went to the Levant and on to India.

The English East India Company shipped 20 tonnes of gold
(almost three years gold output then) to India between 1660 and 1690
(Credit: Adaption from the jacket painting by F J H Gardiner for the
book Lords of the East, by Jean Sutton. London,
Conway Maritime Press, 1981)

The gold and silver from the Americas, after Columbus discoveries, mostly just passed through Spain on its way to the east. In the 17th century the Dutch and English East India companies sent gold and silver to India and Java to pay for goods. The English East India Company shipped 20 tonnes (643,000 ounces), almost three years' world output then, to India between 1660 and 1690. Mocatta, the oldest member of the London gold market, first sent gold to India in 1676 to pay for diamonds, the beginning of a long relationship between London and Bombay (now Mumbai) merchants. During the American Civil War in the 1860s India imported almost 420 tonnes (13.4 million oz) in payment for cotton exports because of disrupted American cotton crops.

Only once has India been a significant dishoarder, when 1,244 tonnes (40 million oz) was shipped out in the 1930s due to distress selling from famine and the new high price for gold (up from $20.67 to $35).

In recent times India has remained faithful to gold. While demand has increased substantially since the early 1980s due to general economic growth, annual consumption is dictated both by the monsoon, with its effect on the harvest, and the marriage season. In an auspicious year there are upwards of ten million marriages, at which between 20 and 200 grams (0.62 – 6.2 oz) may be worn by the bride. The status of a family in its community is still often judged by the gold exchanged as the bride's dowry.

The official import of gold into India, however, was banned from 1947. The Gold Control Act of 1962 also forbade private holding of gold bars. With local production of less than two tonnes (64,000 oz) from two small mines, Bharat and Hutti, together with recycling, the main demand was met by smuggling from the regional markets of Dubai, Singapore, and Hong Kong, usually as ten tola bars, uniquely preferred in India. The smuggling was a highly professional business, involving up to 200 tonnes (6.4 million oz), encouraged by a premium of 30 per cent over the London price. Over 3,000 tonnes (96.5 million oz) has entered India unofficially since 1947.

In the 1990s, however, deregulation of the market has finally taken place, ushering in the modern market of today.