Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

GOLD SUPPLY AND DEMAND
The trade attribute static net demand to some inhibiting factors. For example, expenditure on lifestyle products increased
at the expense of gold jewellery. More old gold jewellery was recycled. Among large retailers in major cities, the sale of
diamond jewellery increased. The static rupee gold price weakened gold’s private investment dimension. Importantly, the
rural economy was relatively depressed.
GROSS FABRICATION AND DEMAND
Gold jewellery
When exchange and buy-backs for cash are taken into account, the gross fabrication of gold jewellery increases
dramatically.
In 2001, when net fabrication was 583 tonnes, gross fabrication appears to have been around 955 tonnes.
Although the gross estimate can only be indicative, it can be recognised that a small decrease in gross fabrication,
alongside a small increase in exchange and buy-backs, can result in a large decrease in net fabrication. And vice versa.
Example
Assume that gross fabrication over a period of 3 months is normally 300 tonnes, and exchange/buy-backs feed 40% so that
net fabrication is 180 tonnes.
If gross fabrication falls by 10% (30 tonnes) to 270 tonnes, and exchange/buy-backs feed 50% (135 tonnes), net
fabrication would fall by 25% to 135 tonnes.
This scenario is relevant to the first quarter of 2002. When the rupee gold price increased unexpectedly by 10 – 15%, net
fabrication (and imports) fell by more than 50%, while gross fabrication (and demand) appeared to fall by only around
15 - 20%.
Total domestic market
Gross demand for gold in 2001 is estimated at 1,053 tonnes: jewellery (91%), industrial (4%), coins (3%) and net bar
hoarding (2%).
Two important points can be made.
• Jewellery retailers tend to refer to quantities of gold in carat (not fine) gold terms. In carat terms, for example, the
market would be around 1,200 tonnes assuming an average actual caratage of K20.
• The market does not make structural sense, and the comments of retailers also do not make sense, unless the extent
of gross demand is taken into account.
The indicative gross demand estimate of 1,053 tonnes explains why there are approximately 300,000 jewellery retailers,
2 million active goldsmiths and 10,000 refiners.
It puts high tonnages of industrial fabrication (4%), coin fabrication (3%) and net bar hoarding (2%) into perspective.
Jewellery accounts for around 90% of the gross market.
It also makes sense of trade estimates that the total market is well over 1,000 tonnes in carat terms, in some cases
estimated at 2,000 tonnes.
It also explains why net demand (and imports) fell so much more than gross demand in the first six months of 2002.
Total imports
This section has focused on supply and demand within the domestic market. In the appendix, “Total gold imports”,
reference is made to gold imported for re-export as jewellery.
When these imports are combined with those for the domestic market, total annual imports ranged between 700 – 727
tonnes over the 4-year period 1998 – 2001.
When indicative gold jewellery fabrication in 2001 for the domestic market (955 tonnes) is combined with that for export
(54 tonnes), India fabricated more than 1,000 tonnes of gold jewellery.
AN INTRODUCTION TO THE INDIAN GOLD MARKET 169