By David Lew
Everyone in the global bullion market has been waxing eloquent on the biggest gold consuming country in the world: India. India’s gold imports make big news at the end of every month. When gold imports decline, bullion analysts make a hue and cry, predicting that gold consumption is taking a beating in India. When imports go up, they would merrily proclaim that Indians are on the streets buying gold ornaments and coins.

Indeed, India is the most lavish gold consumer in the world. No one can miss the sign of a gold shop, if he travels across any Indian city. A small village town called Chavakkad in central Kerala, a southern Indian state that consumes 20% of all gold sold in the country, has more than 115 glittering gold jewellery shops! And it is not just the village towns. Travel to Zaveri Bazaar, the nerve centre in Mumbai, India’s financial capital. Thousands of bullion traders and dealers carry out global trading in gold from here.

Gold prices may be zooming world over. This week, the yellow metal glittered as it touched a record high of $1225 per ounce! Now, analysts from Jim Rogers to Jim Sinclair are predicting that gold is the hottest investment asset compared to the declining US dollar, and thus the yellow metal prices will soar above $2000 per ounce in the next decade, beginning 2010.

But despite this huge rise in gold prices—the yellow metal prices gained by more than 39% in 2009—Indians continue to buy gold. They buy gold ornaments for the marriage of daughters. They buy gold jewellery during festival seasons. They buy gold coins from banks, post offices and brokerage houses and keep them in safe lockers as future investment. India remains the darling consumer of the bullion trading industry. No bullion analysis daily misses to mention India when it comes to gold trading, consumption and imports.

According to an estimate from the World Gold Council (WGC), India is set to consumer or buy around 700 tonnes of gold in the year 2009. In 2008, India’s gold buying was higher at 900 tonnes. Bullion traders and WGC say that gold consumption has declined in India this year thanks to the skyrocketing prices of the yellow metal. Ditto is the case with India’s gold imports. Last year, India imported 712 tonnes of gold. Gold imports this year is expected to plunge to around 450 tonnes thanks to the dropping sales of gold on high price. India’s total gold holding is between 10,000 tonnes and 15,000 tonnes of which the Reserve Bank of India has only around 600 tonnes.

While India is the proud, No 1 consumer of gold in the world, that golden status may move over to China by next year. Bullion analysts and WGC have already forecast that China may overtake India in gold consumption soon. Increased love of Chinese for gold may cause a huge rise in gold jewellery sales in China. According to market analysts, middle-class buyers in China, the second-biggest gold user, drove a 16 per cent gain in gold and silver jewellery sales in the first nine months.

China’s economy grew 8.9 per cent in the third quarter, the fastest pace in a year, and the World Gold Council said in July that the nation may pass India as the biggest consumer. Bullion is on course for its ninth annual gain after the dollar weakened and demand for gold as a store of value increased.

The Chinese have only started to buy gold as an investment product, and there’s huge room for this sector as the middle class grows.

China’s household savings reached 26 trillion yuan ($3.8 trillion) this year. Gold and other jewellery sales in China are forecast to reach 260 billion yuan this year, only 1 per cent of the total household savings.

It is nice to read about India’s gold consumption. But when it comes to gold mining and production, it is really a sad story in India. Indeed, it is a tragedy that India, rich in mineral resources, virtually produces no gold compared to China, Russia, South Africa or Australia. This year, gold production has risen in countries like China, Russia and Australia. But no one in India, the government included, is bothered about gold mining and production! Gold price may be booming, but gold production in India is plunging, year on year.

Here are some startling statistics on India’s gold mining and production:

**In 2007, India produced 11.99 tonnes of gold. In 2008, the gold production was 3.71 tonnes. In 2009, for which figures are not yet, it is estimated that the yellow metal output will be same or less than last year.

**India currently produces hardly 0.4% of its gold consumption despite having 9% of global gold reserves under the country’s land mass. Though private entrepreneurs have come forward for reconnaissance, hardly less than 1% of them have come up to mining stage. This is mainly for want of latest technology, high risk capital etc.

**Foreign companies rarely come to India because they cannot sell the data they map and can only utilise the information if they venture into mining themselves. Under the existing rules if any entrepreneur invests money and finds gold, then he must apply again for mining. Southern India’s Deccan region has been surveyed as having one of the richest deposits of the yellow metal.

**India is estimated to have 20,000 tonnes of gold and diamond reserves spread over several states. Concerned over its increased dependence on bullion imports, the government of India has asked Geological Survey of India (GSI) to tap the countries potential to dig out gold and diamond reserves spread over these states.

**The government has also accorded the public sector company Hindustan Copper Ltd to diversify into gold and diamond mining in collaboration with leading foreign companies through setting up of joint ventures. The overseas firms that are in talks with the government for gold and mining exploration include Indogold, Anglo-American Gold Mining, Monarach Gold Mining, De Beers India Ltd, ACC Rio Tinto Exploration Ltd and BHP Minerals.

Indeed, these are big plans for the Indian government to tap the vast underground gold reserves. India is also trying to come out with a new legislation on mining aimed to help increase mining. Great initiatives to boost gold output by India. But it needs to be watched whether these major plans really get a realistic edge in India, as the country’s mining sector is a battleground between politicians, greedy industrialists and environmental activists.

It remains to be seen if India will catch up in gold mining with China—the dragon country that has given top priority to gold exploration and mining with a target of 700 tonnes of output.

David Lew is a bullion commentator with Commodity Online. You can contact him at info@commodityonline.com

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook