Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

GOLD SUPPLY AND DEMAND
Coins and TT bars
Anecdotal evidence suggests that more than 50% of annual coin fabrication is converted into jewellery over time.
It also suggests (at this time) that most TT bars bought for personal hoarding would enter the jewellery market (i.e. sold
for cash), or would be converted into jewellery, over time.
Many coin and TT bar purchases appear to act as deferred purchases of gold jewellery.
Consolidated gross supply
When recycling is taken fully into account, gross annual supply is broadly estimated at 1,053 tonnes in 2001.
Gross supply 2001 2000
New gold 681 680
Recycled gold 372 347
Total 1,053 1,027
Source: See appendix “Indicative gross fabrication and demand”.
To repeat, an estimate of the amount of gold recycled can only be indicative. The important point is that the amount is
substantial, and sensitive to movements in the gold price.
NET DEMAND
In a gold market that comprises hundreds of thousands of family retailers and fabricators, the breakdown of
demand is obliged to rely on an interpretation of anecdotal evidence. There are no firm statistics.
In this section, net gold jewellery demand (i.e. excludes fabrication from recycled gold) and net bar hoarding are combined
for 3 reasons. Both have an investment dimension. Hoarded bars tend to enter the jewellery market over time. Among
analysts there is also not yet a broad consensus about the split. This report does suggest a tentative split, based on
available anecdotal evidence. Its net bar hoarding estimate is low.
1990 – 1997 (8 years)
Net demand for gold in all categories rose rapidly over the period from 178 tonnes in 1990 to 645 tonnes in 1997.
Industrial fabrication increased from less than 2 tonnes to an indicative 18 tonnes, due mainly to an increase in the use of
gold for Zari crafts.
Coin fabrication grew from zero, as fabrication was banned under the Gold (Control) Act, to an indicative 19 tonnes.
Net jewellery fabrication & bar hoarding increased from 176 tonnes to 609 tonnes. The reason for its rapid growth was the
outcome of several factors:
• Restrictions on gold ownership during the Gold (Control) Act had generated pent-up demand.
• Jewellery became more accessible when the number of retailers increased from 16,000 to more than 200,000.
• Gold could be officially imported by NRI’s.
• Population increased by 14%.
• Rural, and especially urban, wealth increased. Industrial production grew by 52%. Agricultural output was high in 1992
- 94 and again in 1996. GDP grew by 37% in real terms.
• Rupee gold price rose slowly and steadily each year, as it had done for decades, until 1996.
• In 1997, when the annual average price fell for the first time in decades (by 12%), gold was viewed as inexpensive in a
booming economy.
1998 – 2001 (4 years)
Net demand in total was largely static over this period, ranging between 650 - 690 tonnes.
Industrial fabrication increased from 18 to an indicative 43 tonnes, due mainly to an increase in demand for gold plating
purposes.
Coin fabrication grew from 23 to an indicative 35 tonnes, influenced by increased corporate demand for coins as gifts and
promotional prizes, and an increase in personal purchases.
Net jewellery fabrication & bar hoarding appears to have declined. In 2001 (603 tonnes) it appears to have been 7% less
than in 1998 (650 tonnes).
Why was net demand largely static when there were so many positive factors such as the following?
• Population grew by 6%.
• GDP increased by 26%.
• Gold was less expensive - the price, static in nominal terms, fell in real terms.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET