Indian premiums on gold, currently 15 % above international prices, pushed massive amounts of Indian savers into silver in 2013. Indian silver imports in 2013 were 6125 tons, an all-time record, up 189 % from 2115 tons in 2012.
In December, silver imports accounted for 825 tons, up 108 % month over month, and up an astonishing 6560 % year over year!
Submitted by Koos Jansen, In Gold We Trust:
India’s customs department DGCIS just came out with their final trade numbers for gold and silver in 2013. Only gross import numbers for both precious metals are disclosed in these reports, the export numbers I grabbed from the Comtrade database (although these numbers are quite insignificant).
Starting from August 2013 all Indian traders had to export 20 % of their gold imports. This was a measure designed by the government, on top of an import duty that was raised to raised to 10 %, to slow down gold import. Of course the only result from these measures was that official gold import dropped like a brick, premiums skyrocketed and Indian supply shifted to smuggling. In this next chart by Nick Laird we can see how the import duty pushed the premiums to 25 % in january.
The loss for the Indian government is that they miss revenues since they raised the import duty from 4 % to 10% through 2013 and implemented the 80/20 rule. Crime has taken over gold trading with all due consequences. Sadly history repeats itself. Official imports crashed hard through 2013.
India gross imported 173 t in H2 2013, down 73 % from 631 t of in H1. Total gross import in 2013 was 804 t, down 20 % from 999 t in 2012. From Jayant Bhandari, who travels a lot through India, I’ve been told that smuggling gold into India is quite easy as customs at the airport and the army at the border are happy to take a bribe. He wrote me:
Some of it comes via planes (via Dubai and Singapore, legally and illegally), some through the Bangladesh border and a minor part through Nepal and Pakistan. I don’t think it is worth the risk to bring it via China. Bangladesh border is the easiest, a few dollars of bribe to the army guys does the job.
I often hear analysts saying that there is shortage of gold in India. Incorrect. It is more liquid a commodity than water is. The spread is so thin that you can often buy and sell at the same price — the trader makes his margin from making jewelry.
Before the 90s, import of gold was heavily regulated and carried a massive customs duty. Of course, in those days most gold arrived in India through smuggling. A big mafia had built up in Mumbai and Dubai, mostly catering to India’s gold demand. Two things happened as a result: Government lost all prospects of earning revenue from gold imports, and most importantly, smugglers ran a ruthless empire in several Indian cities, particularly in Mumbai, controlling human-trafficking (with horrible consequences for poor girls and children) and financing the real-estate and the film industries. They were the unofficial rulers of Mumbai. When restrictions on gold were eased in early 90s under pressure from IMF, the same smugglers took the shape of what got to be known as terrorists. (All this should not sound strange to those who understand the history of prohibition in the US).
The current restriction and heavy custom duty on gold will repeat the consequences of the era before the 90s. But really in an irrational world where rhetoric has more value, who cares about the real consequences? Indeed, based on my many conversations with traders, all gold that India needs is already coming through smuggling. And smugglers want restrictions on gold imports to stay in place — they haven’t had it this easy for a long time.
The premiums on gold, currently 15 % above international prices, pushed a lot of Indian savers into silver. Indian silver import in 2013 was 6125 t, an all-time record, up 189 % from 2115 t in 2012. In December silver import accounted for 825 t, up 108 % m/m, 6560 % y/y.
I wonder if the current Indian government is satisfied about its 2013 precious metals policy and if the next government will choose the same path.