India’s appetite for gold just gets bigger and bigger. So too with a record import level of an extraordinary $14. That’s a remarkable 200% increase over last year. During that same month, imports were $4.9 billion. The dramatic increase in gold imports underscores just how culturally ingrained the use of gold is in Indian society. This new increase contributes to the nation’s negative trade balance, driving the trade deficit to an all-time high.
Gold imports have exploded by 36 times. This increase is primarily driven by seasonal demand from the holiday season, along with increasing demand for gold as a core long-term investment. As Indians get ready for wedding season and a whole season of festivals, demand for gold can be expected to surge at this time, too. Meanwhile, jewelers nationwide are enjoying their best sales in years. Consumers are rushing to purchase both gold ornaments and bullion, which has fueled the increase in imports.
Beyond these cultural considerations, international market forces have played a significant role in driving India’s gold frenzy. Our view is gold prices are going to be stable and attractive. Consequently, a growing number of investors view it as a safe haven asset in today’s volatile economic landscape. That mindset — despite some big cracks showing within — has certainly stoked gold’s demand. Third, it deepens India’s historical cultural ties to gold as a measure of wealth and prosperity.
Unfortunately like their trade balance, the rise in imports has been damaging for India. The rapid surge in gold imports has pushed the nation’s trade deficit to record highs. A trade deficit occurs when a country’s imports are greater than a country’s exports. This can lead to fears of economic collapse or the devaluation of its currency. While India weighs the clouds of this growing trade deficit, economists are carefully watching its effects on the larger economy.
Bullish analysts are pointing to the relentless demand for gold. They caution that policymakers need to address the potential economic fallout from these record high levels of imports. These strategies might include attracting domestic production or finding other ways to invest to reduce dependence on foreign gold shipments.