Did Demonetisation Push Up Gold Imports By 26% In November?
Imports of gold spiked in November on an increase in purchases that some suspect could be linked to the government’s demonetisation announcement, along with regular wedding season demand. The demonetisation announcement came on November 8 and media reports suggested that there was heavy demand for gold in the immediate aftermath as citizens tried to use old currency notes to buy jewelry.
Data released by the government showed that gold imports in November spiked to $4.4 billion in November compared to $3.5 billion in October - a 25.7 percent jump on a month-on-month basis. On a year-on-year basis gold imports spiked 23 percent.
Gold imports rose to 15 month high of $4.4 billion compared to $3.5 billion in Oct-16 as seasonal demand for gold and demonetization lead to spike in sales, with unaccounted money reportedly being utilized for purchases. This spike is expected to be a blip and in coming months the demand for gold is likely to see a decline as negative wealth effect and government’s crackdown on unaccounted money may keep demand for the yellow metal muted.Yes Bank Research
The surge in gold imports also pushed up the trade deficit in November to a 16-month high. The trade deficit for the month stood at $13 billion compared to $10.2 billion the previous month.
Exports fell in November to a 12-month low, led lower by gems and jewelry exports. For the month exports stood at $20 billion compared to $23.5 billion last month. This, too, may be linked to demonetisation.
Granular data shows export decline was led largely by gems & jewelry and textiles with gems and jewelry alone contributing to more than half of the sequential contraction in exports in value terms. As such, the decline in exports has been focused in segments that have higher concentration of SMEs (small and medium enterprises) thus having higher dependency on cash for transactions.Yes Bank Research
Overall imports for the month stood at $33 billion in November compared to $33.7 billion in October. Oil imports and non-oil non-gold imports both declined on a month-on-month basis.