India gold imports in H1, 2017 greater than all of 2016

India imported 521 tonnes of gold in first half of2017

H1 figure for gold imports $22.2 Bln versus $23 Bln in all ’16

Gold demand was up 15% year- on-year in the first quarter

June gold imports climbed to an estimated 75 tonnes from 22.7 tonnes a year ago

Annual total set to surpass900 tons, strongest year since ’12

I trust gold more than the currencies of countries 63% of Indians in Survey

Editor:Mark O’Byrne

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Gold imports into Indiahave surged in the last six months thanks to festivals, economic recovery and concerns over a new tax regime and the push for the cashless society in India.

Imports totalled 521 tonnes in the first half of this year, compared to just 510 tonnes in all of 2016.

Should buying levels continue then India could end 2017having imported over 900 tonnes, a level not seen since 2012.

These figures are impressive given where the country’s gold demand was at the end of the 2016. The low figure of just 510 tonnes imported in the entire year was mainly thanks to a range of political and economic issues which had a more negative role than anyone foresaw.

Many of those issues are now resolved, but somehad lingering effects. Some good, some bad. So it is with tentative celebration that we look at this boost in gold demand from the world’s second-largest lover of gold and ask how the country has begun to favour gold once again and if it will continue at pace.

2016: A tough year for gold buyers

Last year physical gold demand for gold coins,gold barsand jewelery in India hit a seven year low not because of a loss in interest in the precious metal but thanks to a range of political and economic factors.

The biggest of these events was of course the sudden announcement by the government to immediately remove all Rs500 and Rs1,000 notes by 30 December. A total of Rs15.44 trillion ($220 billion) or 86% of the currency in circulation was abandoned almost overnight.

Whilst many internationally and in India itself, especially their many small and medium enterprises,looked on in horror at the impact this had on savers and on the economy, the Governor of the Reserve Bank of India, Urjit Patel’s prediction that the economic recovery would be ‘V’ shaped has come to fruition.

The World Gold Council’s June newsletter draws attention to two significant indicators, the Composite PMI and the sale of motorcycles, which have demonstrated this V-recovery.

The sale of motorcycles are a good indicator of the health of India’s cash economy. Last year sales halved in one month, to their lowest in six years. The PMI dropped to its lowest level on record. Both have since rebounded.

Whilst there are still some controls on cash, new money has been printed and is making its way into circulation. Cash in circulation has increased by 58% in the first half 2017, this will no doubt help the economy past the liquidity squeeze.

2016 wasn’t just about the war-on-cash in India. The gold market was also negatively affected by a prolonged jewellers strike. Sales of gold were crippled across the country as a result. The strike is now over and supply of jewellery to the market has reportedly returned to normal levels.

Cashless push, good for gold

In the short-term the removal of 86% of the country’s cash was clearly damaging to physical gold demand and there are some lingering effects that will continue to impact the market.

The first of these is that as of April 1 2017, all cash transactions over RS200,000 (US$3,000) are banned. This is likely to prove problematic for those in rural areas where access to banking, cheques and electronic payments is not common.

We obviously don’t know what the impact of this will be. It may curb gold purchases all together, or we may see a change in gold buying behaviour namely pushing demand onto the black market or buyers spreading their purchases over a period of time.

The above is a negative, but something which is only likely to impact in the short-term. If at all, it may not given the ruling came into play in April and purchases have remained strong since then. Ultimately over time buying behaviours will change rather than the desire to