Gold : India once again over takes China as world’s biggest gold consumer

Reuters 13 Nov 2014

Global gold demand fell to its lowest in nearly five years in the third quarter as Chinese buying slid by a third, the World Gold Council said on Thursday, putting it back behind India as the world's biggest gold consumer.

Total gold demand fell 2 percent to 929 tonnes in the third quarter, the data, prepared in conjunction with GFMS analysts at Thomson Reuters, showed. That is the lowest since the last three months of 2009.

Last year's number one consumer China saw a 39 percent drop in jewellery consumption as well as a 30 percent fall in bar and coin investment. Combined demand fell 37 percent.

India once again took over as the world's biggest gold consumer, buying 225.1 tonnes of gold jewellery, coins and bars last quarter, compared to 182.7 tonnes in China.

India, which lost its crown as the leading gold buyer to China in 2011, saw a 60 percent surge in jewellery demand in the third quarter.

"Our forecast for the full year is the same for both India and China. We expect demand in both to come in at between 850-950 tonnes," Alistair Hewitt, head of market intelligence at the World Gold Council, said. "Both remain very positive pillars of gold demand."

Demand for gold snowballed in the wake of the financial crisis that followed the collapse of Lehman Brothers in 2008, as investors sought the metal as a portfolio diversifier and safe store of value.

It peaked in 2011 at 4,702 tonnes, but had fallen to 4,080 tonnes by last year. Prices XAU, which crashed 28 percent last year, have fallen another 3.3 percent in 2014. This year the WGC expects gold demand to stabilise.

"We expect gold demand to be largely similar to last year, at between 4,000-4,100 tonnes," said Hewitt.

The third quarter marked the seventh consecutive quarter of outflows from exchange-traded funds. Holdings of the vehicles, which issue securities backed by physical gold, fell 41.3 tonnes last quarter, the data showed.

Global demand for gold jewellery, the biggest single area of consumption, fell 4 percent to 534 tonnes.

Among supply sources, mine production rose 1 percent to 812 tonnes, while scrap supply fell 25 percent to 250.5 tonnes. Year to date, 2014 has seen the lowest level of recycling since 2007, the WGC said.

Gold :Gold Sinks to Fresh Four-Year Low

By 

TATYANA SHUMSKY

WSJ : Nov. 3, 2014 2:38 p.m. ET

NEW YORK—Gold extended its four-year low on Monday as the dollar advanced against other currencies and stocks hit record highs.

Gold for December delivery, the most active contract, fell $1.80, or 0.2%, to $1,169.80 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest settlement since July 29, 2010.

Gold prices continued to give way to the dollar, which climbed against other currencies amid expectations of stimulus by foreign central banks. Last week, the Bank of Japansurprised markets with plans to boost its bond-purchasing efforts. This week, the European Central Bank is due to meet, with investors hoping to see a more proactive stance from officials.

By contrast, the Federal Reserve concluded its bond-purchasing program last month and is drawing closer to raising interest rates.

The shifts in global monetary-policy trends have bolstered the dollar and weighed on gold. As the greenback strengthens, dollar-denominated gold becomes more expensive for buyers who use other currencies to fund their purchases. Moreover, gold doesn’t earn interest or dividends and has a tougher time competing with bonds and stocks when interest rates climb.

“With the interest-rate hike anticipated next year, there’s a fear that everyone will run to cash and so far, they are,” said John Payne, senior market analyst with Daniels Trading in Chicago. He added that gold has become one of the main casualties of this shift.

Fresh records in U.S. stocks further tarnished gold’s appeal.

A steady stock market also weighed on gold’s appeal to investors. The S&P 500 index touched an intraday record of 2024.46 and was recently up 0.2% at 2021.

While some investors buy gold on the belief it will hold its value better than other assets during periods of economic upheaval, they tend to shed the precious metal in favor of riskier investments such as stocks when the economic outlook brightens.

Meanwhile, platinum and palladium prices got a shot in the arm from stronger U.S. car sales, with auto makers reporting company figures throughout the day. Edmunds forecasts U.S. car sales will rise 6.3% in October, though several car makers predicted stronger results.

While most investors are familiar with platinum and palladium’s use in jewelry, the white metals are also widely used in car-exhaust filters where they help break down pollutants.

Nymex palladium for December delivery rose $12.60, or 1.6%, to $804.40 a troy ounce, the highest settlement since Sept. 24.

Platinum for January delivery climbed $7.60, or 0.6%, to settle at $1,242.80 a troy ounce.

The game has changed for gold saving schemes

Workaround Some jewellers are circumventing the rules 

by reducing the tenure of their schemes

Rajalakshmi Nirmal :BL :29 june 2014

Jewellers are closing down schemes that accept money for over a year, thanks to the new Companies Act

Did you know that Tanishq, a national jewellery retailer, has stopped accepting fresh deposits under its gold savings scheme?

This is because the new Companies Act, notified recently, has laid down certain conditions for collection of public deposits by companies (other than banks and NBFCs). And unless jewellers satisfy these conditions, they cannot run deposit schemes.

Sandeep Kulhalli, Senior VP, Jewellery Retail and Marketing, Titan Company, said: “We have written to the CLB (Company Law Board) and the Commerce Ministry for clarifications of the rules and have thus temporarily stalled the scheme.”

However, jewellers running their stores as sole proprietorships or partnership firms can still run savings schemes without having to sweat over the new regulations.

New provisions

Only jewellers registered as private limited companies fall under the ambit of the Companies Act, says Ramesh Vaidyanathan, Managing Partner, Advaya Legal.

The Companies Rules, 2014, has brought deposits taken by jewellers under its regulatory ambit. Says Deep Roy, Associate Partner, Economic Laws Practice: “Deposits taken by jewellers were previously excluded under the definition of ‘deposits’ from the Companies (Acceptance of Deposit) Rules, 1975. As per the Companies (Acceptance of Deposits) Rules, 2014, an advance in lieu of supply of goods will not be a deposit only if it is appropriated and the goods supplied within 365 days.”

The rules further state that “any amounts received by a company, whether in the form of instalments or otherwise, from a person with a promise or offer to give returns, in cash or in kind and any additional amount contributed by the company (jeweller in this case), will also be considered as a deposit.”

Thus, all private limited jewellers who run gold saving schemes for durations of more than a year, fall under the new Companies Act.

The Act also holds that any company that raises money from the public for tenures of more than 365 days has to get rated for its repayment capacity from a credit rating agency and take deposit insurance. With most of the jewellers’ saving schemes running into 24 to 36 months and falling under the definition of ‘deposits’ under the new Companies Act, the reasons for jewellers discontinuing their saving schemes are clear. However, some jewellers have worked around the new rules. They have started 10+1 and 11+1 month schemes. Here, as the duration is less than a year, they manage to stay below the regulator’s radar.

Limits on returns

But even if jewellers do run schemes for durations of over 365 days, the returns they can offer are capped. Right now, the return on gold savings schemes of most jewellers is 15-17 per cent a year, (based on the present value of cash outflows and inflows at the end of the term for a 24-month savings scheme).

Now, the Companies Act says that no deposit scheme should offer a return that is higher than what is permitted for NBFCs. Currently, NBFCs are permitted to offer an interest rate of only 12.5 per cent a year. So, there will perhaps be a redrafting of such schemes by the jewellers.

Companies which do not meet the requirements of the law but have deposits running, need to return the deposits to the public before April 1, 2015, adds Ramesh Vaidyanathan. Otherwise, they will be penalised in accordance with the provisions of the Act.

Finally, some jewellers have recently launched gold deposit schemes that collect old gold and promise to return a higher grammage of gold after a few years.

Experts are divided in their views on whether these schemes are also governed by the new provisions. It’s still wait-and-watch on that one.

Scandal unfolds: How prices are set in $20 trillion gold mkt

By Bloomberg | 27 Nov, 2013, 10.41AM IST 

LONDON: Every business day in London, five banks meet to set the price of gold in a ritual that dates back to 1919. Now, dealers and economists say knowledge gleaned on those calls could give some traders an unfair advantage when buying and selling the precious metal.

The UK Financial Conduct Authority is scrutinising how prices are set in the $20 trillion gold market, according to a person with knowledge of the review who asked not to be identified because the matter isn't public. The London fix, the benchmark rate used by mining companies, jewelers and central banks to buy, sell and value the metal, is published twice daily after a telephone call involving Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC Holdings and Societe Generale.

The process, during which gold is bought and sold, can take from a few minutes to more than an hour. The participants also can trade the metal and its derivatives on the spot market and exchanges during the calls. Just after the fixing begins, trading erupts in gold derivatives, according to research published in September. Four traders interviewed by Bloomberg News said that's because dealers and their clients are using information from the talks to bet on the outcome.

"Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people's knowledge," said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. "That is the great flaw of the London gold-fixing."

The UK capital is the biggest center for gold trading in the world, according to the LondonBullion Market Association, which said more than $33 billion changed hands there each day in 2012, exceeding the $29 billion of futures traded on Comex, the New York commodities exchange, data compiled by Bloomberg show. Financial instruments including cash-settled swaps and options are priced off the London fix, according to the LBMA website.

In private meetings this year, the US Commodity Futures Trading Commission, which regulates derivatives, discussed reviewing how gold prices are set, according to a person with knowledge of the talks. The FCA review is preliminary and not a formal investigation, another person said. The people wouldn't say what's being looked at or if regulators suspect wrongdoing.

Participants on the London call can tell whether the price of gold is rising or falling within a minute or so, based on whether there are a large number of net buyers or sellers after the first round, according to gold traders, academics and investors interviewed by Bloomberg News. It's this feature that could allow dealers and others in receipt of the information to bet on the direction of the market with a high degree of certainty minutes before the fix is made public, they said.

"Information trickles down from the five banks, through to their clients and finally to the broader market," Andrew Caminschi, a lecturer at the University of Western Australia in Perth and co-author of a September 2 paper on trading spikes around the London gold fix published online in the Journal of Futures Markets, said by phone. "In a world where trading advantage is measured in milliseconds, that has some value." Pat McFadden, an opposition Labour lawmaker who sits on Parliament's Treasury Select Committee, said British regulators need to probe any possible abuses by dealers.

"The gold market is hugely influential, and there needs to be public trust in the gold price," McFadden said in an interview. "Question marks have been raised about the benchmark price of gold, and it's important that regulators investigate."

Two theories about gold

BS ; Devesh Kapur and Marla Spivack and Arvind Subramanian and Milan Vaishnav  

November 6, 2013 Last Updated at 11:00 IST

Swiss data secrecy suggests a sinister explanation for India's gold fetish

Gold has been all over the news in India lately because high and rising imports of the shiny stuff led directly to a deterioration of the current account, which in turn exacerbated the rupee's vulnerability over the past few months.

Three intriguing facts about India's gold imports (illustrated in the graphs) scream for an explanation. First, the increase in gold imports has coincided with a sharp decline in financial savings. Second, a predominant share of India's gold imports originates in Switzerland. And third, there is a large discrepancy in India's gold imports from Switzerland: in recent research we have undertaken, we find that while India claims to import large amounts of gold from Switzerland (more than $26 billion), Switzerland reports that it shipped gold worth less than $6 million (yes, million, not billion) to India, resulting in a large unaccounted trade. (Click for graphs)

There are benign and sinister explanations - not mutually exclusive - for these facts. Consider first the benign ones. As India started growing rapidly in the early 2000s, Indians sought an attractive and safe store of wealth (helped no doubt by a long-standing cultural affinity for the yellow metal). Around 2003, the world price of gold started climbing, rendering gold an attractive investment asset. After 2007, domestic inflation started soaring, rendering gold a safe store of value, relative to domestic bank deposits. These explain the decline in domestic financial savings, moderate at first but accelerating after 2007, and the associated increase in gold imports (graph 2).

Since the rising demand reflected in large part a demand for savings and wealth (rather than a desire for consumption goods such as jewellery, as noted in the last Economic Survey of the finance ministry), it got expressed in increased imports of gold bars (ingots). And since Switzerland is one of the largest exporters of such high-quality and certified ingots, imports had to be to a great extent from Switzerland rather than from other sources (graph 3). And since Switzerland chooses not to report its exports of gold on a country-by-country basis, the discrepancy in recorded Indian imports is easily explained (graph 4).

The conclusion? India "just" has to bring inflation under control and restore macroeconomic order, which, combined with a providential stabilisation of gold prices, will then allow the country to move beyond its gold fetish and its destabilising consequences.

But sinister explanations come in the way of that rush to comfort. And in an era of eye-popping scams and massive wealth creation, due vigilance and diligence are the need of the hour. It is no secret that the go-go years of the 2000s also created substantial ill-begotten wealth. With banks starting to toughen regulations and implementing more stringent know-your-customer (KYC) rules (since the mid-2000s), rich and corrupt Indians exited from the regulated banking system to gold as a "safe haven" - "safe", that is, from the authorities. Hence the rise in imports, which was, in part, the counterpart of the decline in financial savings (graph 2).

But suppose these Indians also wanted to stash some of their wealth overseas, especially in tax havens such as Switzerland, how would they do so? One possibility is by over-invoicing imports from Switzerland. Importers could claim that they imported gold worth $100 from Switzerland while in fact only buying gold $50, with the difference finding its way to Swiss bank accounts prized for their lack of transparency (hence the numbers in graphs 3 and 4).

According to media reports from last June, Switzerland ranked first among the major countries to which India despatched its secret tax and finance-related queries (232 in all) during the last fiscal year. In contrast, the authorities sent "only" 145 such requests to Mauritius. The gold trade channel, then, offers a convenient way of repatriating wealth to the tax haven, which also happens to be the source of imports. This channel is not only convenient, it is also "legitimate," at least in the limited sense that payments can be made through the banking system for prima facie legal (namely trade) purposes.

Of course, there is deceit in the underlying transaction, which must be facilitated or condoned. Note that capital flight cannot work if customs officials are honest and their procedures effective. They can verify the quantities and values of gold that importers declare and match them against banking documentation relating to the payment for imports. Hence, the sinister explanation requires some degree of incompetence or complicity of customs officials in capital flight.

Are they? We can never tell; but, as economic researchers, there is one - albeit indirect and imperfect - way of checking. We can exploit the insight in Robert Solow's famous saying that in economics there is only one law: "Every purchase is a sale and every sale is a purchase." In the trade context, every import is an export and vice versa. We can try and match at a very disaggregated level (and by partner country) what is being reported at the Indian end as imports with what is being recorded as exports at the partner end.

But here's the zinger. Swiss law, as it currently stands, does not require Switzerland to publish details of its gold trade. In 1981, under pressure from leading Swiss banks, Switzerland stopped publishing detailed statistics on monthly imports and exports of gold bars. The country's three largest banks complained to the authorities that country-level reporting was harming business, since it removed the veil of anonymity. Some have suggested that the underlying motivation was linked to the Swiss role in facilitating the gold trade involving South Africa, then under apartheid. Given the collapse of apartheid long ago, what is the rationale today for this norm? Mysteriously, Switzerland publishes detailed data on a lot of its trade - but not gold bars.

The international community has made great strides towards transparency in relation to anti-money laundering and to tax evasion. Especially, on the latter, Switzerland has been responsive to prodding by the United States and other rich nations. It is time to extend transparency to areas of concern to developing nations, which are struggling to improve governance and reduce corruption. Switzerland could help in this endeavour by publishing details of its gold trade. To be clear, we have no interest in conspiracy theories and stand ready to accept the benign interpretations for these facts. Yet, given the massive capital flows at play (and the shenanigans we have become inured to), Indians deserve assurances that all is, in fact, above board. Unravelling the mystery of India's gold fetish could well be in the hands of the bureaucrats of Berne. The clarion call from developing countries to Switzerland should be: "Publish or we perish."

Import duty on gold jewellery increased to 15%

Rajesh Bhayani  |  New Delhi  September 18, 2013 Last Updated at 00:59 IST

In a move aimed at protecting the domestic jewellery industry, the Centre on Tuesday increased the Customs duty on gold and silver jewellery by five percentage points to 15 per cent.

Traders had been exploring the possibility of importing jewellery, especially gold, as it is hassle-free and does not attract the Reserve Bank of India’s 80:20 norms, under which 20 per cent of imported gold has to be re-exported. There also was a plan to import only crude jewellery, manufacturing cost of which is hardly one per cent, to avoid the 80:20 rule. The traders were exploring imports from Singapore and Dubai.

However, the government has plugged this loophole by increasing import duty to 15 per cent.

TWIN BENEFITS

The govt’s decision to raise Customs duty on gold jewellery to 15% would: PLUG LOOPHOLE By importing gold jewellery, instead of gold, traders could have avoided RBI’s 80:20 norms, under which 20 per cent of imported gold has to be re-exported HELP DOMESTIC INDUSTRY Imported jewellery — mostly machine-made and cheaper because of lower labour cost — could have been hurting Indian jewellery makers’ business

Sudheesh Nambiath, India Analyst at GFMS Thomson Reuters, said: “After the duty on gold was increased to 10 per cent and with new import norms in place, it made sense to import jewellery to meet at least partial requirement, as this was free of hassles. However, duty on jewellery at 15 per cent has killed the benefit that existed.”

In a press note, the finance ministry said that jewellery making was a labour-intensive industry, with millions of artisans dependent on this sector for their livelihood.

With no difference in duty on primary metal and jewellery earlier, the note says, “there is an apprehension that Indian jewellery makers would not be able to compete with cheaper imports, particularly when a majority of the imported jewellery is machine-made, compared with hand-made jewellery in India... To protect the interests of small artisans, the Customs duty on articles of jewellery and of goldsmiths’ or silversmiths’ wares and parts thereof is being increased from 10 per cent to 15 per cent”.

Given that labour costs for hand-made jewellery are far higher (at 5-10 per cent of gold value) compared with just 1 per cent for machine-made jewellery, the latest move by the government should provide a level playing field to domestic jewellery makers.

A notification to this effect was issued on Tuesday.

Gold futures price seen hitting new peak of Rs 33,000 on weak Indian rupee

 FE :REUTERS : MUMBAI, AUG 27 2013, 13:33 IST

Gold futures, which hit a record high on Tuesday, are likely to touch the keenly watched 33,000 rupees ($510) per 10 grams mark this week, as a weakening rupee could continue to make the dollar-quoted yellow metal expensive.

Higher gold prices could dent demand in the world's biggest buyer of the yellow metal, even as traders scramble for supplies after the federal government put a quota system on imports by linking exports with domestic consumption.

The most-active gold for October delivery on the Multi Commodity Exchange (MCX) was 2.11 percent higher at 32,549 rupees, after hitting a record of 32,677 rupees, breaching its previous record hit in November last year.

"The main reason would be rupee depreciation and high crude prices," said Gnanasekar Thiagarajan, director with Commtrendz Research.

The Indian rupee breached the 65.56 per dollar mark to hit a record low, as a steep decline in the domestic share market following the approval of the food security bill in the lower house of parliament hurt sentiment.

The rupee plays an important role in determining the landed cost of the dollar-quoted yellow metal.

Buying is advised on dips to 32,400 rupees, with a stop loss at 32,200, targeting 33,000, said Thiagarajan.

Silver for September delivery on the MCX was 2.54 percent higher at 55,155 rupees per kg.

Buying is advised in silver at 55,800 rupees, with a target at 57,000 rupees, and a stop loss at 55,100 rupees, said Thiagarajan.