The barbarous relic in the time of drought

Gold imports were a mere 18 tonnes in March 2016, the lowest in 30 months. The last time they were so low was in August and September 2013, when the taper tantrum was in full swing and the government had been forced to impose stringent restrictions. Does the dip last month mean gold demand is finally coming down? Gold imports have now fallen for three consecutive months. Has the terrible drought, which has affected a quarter of the country’s population, finally had its effect on our obsession with what Keynes called the ‘barbarous relic’?

Well, gold demand in India has so far been resilient even in the most trying circumstances. According to the World Gold Council’s estimates, gold consumption in India in the fourth quarter of 2015 grew by 6% year-on-year. Here are the growth figures for Q4, 2015: India 6%; US 6%; East Asia 5%; China 3%; Europe excluding the ex-communist bloc -7%; Middle East & Turkey -18%; Russia -26% and other regions -3%. Indians have been battling shoulder to shoulder with the US in propping up gold demand, in spite of Indian per capita income being an insignificant fraction of that of the US.

Indeed, for the year 2015, at 654.3 tonnes, Indian jewellery demand reached its third highest level on record and the highest since 2010. The World Gold Council (WGC) was moved to comment, “Indian consumers have been steadfast in their desire for gold, even in the face of very challenging circumstances—most notably, extreme adverse weather conditions and a squeeze on rural incomes.”

The WGC report remarked about the difficulties gold consumers faced last year, especially in South India. It said, “Chennai was battered by heavy rainfall and flooding, while falling rubber prices and lower investment from the sizable expat population based in the Middle East hit incomes in Kerala. In Telangana, rural incomes weakened after the deficient monsoon curtailed output of rice and cotton.” But then the festivals came to the rescue and “Growth in festival-related demand overcame this weakness in the south of the country.”

The strong demand for gold in these times of rural distress merely shows that the peasants most affected by the drought could hardly afford to buy gold anyway. The rich and the so-called middle classes have not been affected and there is thus no reason for them to curtail their purchases of the shiny yellow metal.

Does the sharp fall in imports in the first three months of 2016 indicate a change? Well, the plunge in gold imports in March was on account of the jewellers’ strike. Another factor is that gold prices have gone up sharply in recent months. But with the strike over and with a moderation in prices, it’s likely to be business as usual for gold imports. Pliny the Elder, the Roman scholar of the first century AD, who complained bitterly of the drain of gold into India, would probably agree.