Gold and silver suffered another big fluctuation last week – those of you who've been reading for a while will know that only made me want to buy more. But rather than head down to my local coin shop, I had a look for companies in our portfolio that have produced materially value-adding news this month but are cheaper than they were a couple weeks ago… I found plenty, some even approaching "stink-bid" buying levels. I love shopping for bargains!
Looking forward, I'm off to kick rocks in Mexico this week, with two objectives in mind: One is to verify improved operations at one silver-gold mine that has excellent potential to see increased production; the second is to verify the projected economics of another project that seems to have what it takes to become a very profitable gold-silver mine. While there, I'll spend some time in the capital and get some local perspective on the political situation and the drug war violence. More on that soon.
Meanwhile, BIG GOLD's Jeff Clark has been doing his own due diligence on the a gold market on the opposite side of the world, a place that's very important to the overall gold market: India. The local source Jeff dug up tells us an interesting tale… and a very bullish one.
It seems that we here at Casey Research are far from the only ones who think a bubble in gold – the real Mania Phase of this bull market – lies yet ahead. So don't get left behind, but also don't forget to keep some powder dry, because more corrections like the present one may well lie ahead before we reach that Mania Phase, and we'll want to buy low.
Senior Metals Investment Strategist
|Rock & Stock Stats||Last||One Month Ago||One Year Ago|
|Gold Producers (GDX)||49.93||54.95||55.24|
|Gold Junior Stocks (GDXJ)||25.28||28.20||35.03|
|Silver Stocks (SIL)||22.90||24.24||24.44|
|TSX (Toronto Stock Exchange)||12,496.96||12,485.59||13,524.82|
What's Really Happening with Gold and Silver in India
By Jeff Clark, Senior Precious Metals Analyst
We've read mixed reports about how lofty gold and silver prices are affecting demand in India. One month we're told demand is up, and the next it's supposedly down. I'm not suggesting that official reports are inaccurate, but it is admittedly confusing and doesn't help us understand the real trend in the country.
Why should we care about the gold market in India? Well, let's face it; the nation is one of the biggest consumers of the metal, a major driver that can give us hints about demand and investment trends, along with what to perhaps eventually expect here in North America. But reading third-party reports about India is very different than getting information firsthand from a credible source in the country. I wanted to get to the bottom of what's really going on in India by talking to a reputable bullion dealer who could give me the inside scoop, an up-to-the-moment dispatch from the front lines, as it were. So I did just that.
Ashish and Rashmi Sand own Savio Jewellery (Savio means "shine" in Italian), a design studio and jewelry factory in Jaipur, India. They've received many design and manufacturing awards since starting their business six years ago, winning five awards in just the past six months. They source gold from bullion agents in Jaipur, who in turn obtain it from dealers in Hong Kong, Dubai, Mumbai, and Delhi. They have industry contacts, friends, and relatives that span the globe, from the US and UK to Asia and Australia. If anybody knows what's happening in the physical gold and silver bullion markets and the Indian jewelry market, it's them.
In this exclusive interview, you can read what Ashish and Rashmi told me about unstoppable demand, growing silver interest, budding demand for coins and bars, reduced selling, shifting trends with women, burgeoning ETFs, and why they believe a bubble is headed our way…
Jeff Clark: Ashish, tell us about your manufacturing facility and design studio.
Ashish: Savio Jewellery makes conceptual jewelry, which can be worn in five or six different ways. It looks "heavy" but is extremely lightweight. It's also affordable.
We design what you want, for as much as you want to spend. For instance, one of my customers wanted a necklace and earring set for her daughter’s wedding; based on their budget, we were able to manufacture a set using 35 grams of gold [about 1.2 ounces].
Jeff: Do you have any difficulties sourcing metal?
Ashish: We don't face any difficulties in arranging gold, whether demand is high or low, because the traders hedge gold on daily basis. We also keep a reserve of gold so that our manufacturing doesn't slow down if metal isn't immediately available. Our suppliers of gold don't face any problem procuring gold, either.
Jeff: How would you describe demand for gold right now in India?
Ashish: We are seeing several shifts in the trends for gold demand. First, even with the increase in price, demand is still strong. People have not stopped buying. Part of this is cultural; wearing gold jewelry in a wedding is a longstanding custom in India and will not change regardless of price.
In fact, our shops are experiencing increased buying in spite of higher prices. Previously we would have one or two customers per day for gold, but now we have five or six. We are getting plenty of new customers, and see new customers more frequently now.
Second, I would say that awareness among customers has increased. Now they see jewellery also as an investment and want a proper return on their investment. Further, due to fluctuations in price, they may book in advance – i.e., if a customer orders a jewellery product, they lock in the gold price ahead of time.
Probably the biggest change we face, though, is that customers are more focussed on getting lightweight jewelry, or 14-carat gold instead of 18-carat gold. This is due to the high gold price. This adjustment, however, has not affected the desire to own gold.
The bottom line is that the rise in the gold price has not hampered demand.
Jeff: Are Indians investing more in bullion (bars and coins) than usual?
Ashish: Indians are definitely investing more in bullion due to the rising trend in gold and silver prices. Investing in gold and silver has always been a good idea for wealth protection to Indians, and now we are seeing them buy more coins and bars than they used to. Coins and bars are mainly purchased either in wedding season or during the Diwali festival. Even I purchase gold coins every Diwali – 10 grams, 20 grams, or any amount.
Another factor is that India has experienced many monsoons over the last two years, and the farmers are tending to invest their savings in gold and silver. This is a major factor for the increase in demand for coins and bars.
Jeff: Is much reselling taking place right now? Is it higher or lower than it used to be?
Ashish: Reselling gold has become rare – and this from a country that consumes more gold than any other and where gold jewelry is a central part of the culture. We rarely have customers who sell back their gold or silver. Before we used to have customers who would sell their scrap gold and make new jewelry from it, but now we don't experience many such customers. I would estimate we currently have 90% buyers and 10% sellers, and before the ratio was 80% buyers and 20% sellers.
They're not selling, because they hope that in the next few years the price will rise further and they can get better returns than what they can at present. Just a few years ago, some customers would buy gold expecting to sell when the price rose; now those customers are sure gold will keep rising year after year and are selling only rarely.
Jeff: We've read about an increased interest in silver in India – tell us what you see.
Ashish: Silver demand has increased sharply in recent years, as increasing numbers of investors use silver as a store of value. Customers are also buying silver to hedge against market losses. While global markets have been uncertain over the past four years, silver has provided huge returns and has been an ideal investment. Because silver has provided the highest recent return of all the commodities, this has attracted the average layman.
Silver demand has also increased for the customer for whom the gold price is out of reach. Nowadays, if they cannot afford gold, they switch to silver. So the number of customers requesting silver has increased.
Silver is also part of gift-giving in India. It is customary to give silver items as a wedding gift, and there are rituals where parents gift silver dinner sets to their daughters at their weddings. In addition to dinner sets, silver is usually found in jewelry, such as a necklace, earring, bracelet, or rings; gift items such as glass sets and crafted boxes; and even showpiece furniture.
Last, there is a steep rise in demand for silver in electronic goods.
Jeff: Rashmi, describe how Indian women view gold. And have you noticed any changes in how they view silver?
Rashmi: Gold and silver are firmly embedded in cultural and religious traditions for Indian women. Over the past decade, Diwali and Akshaya Tritiya have become major gold- and silver-buying occasions in India. Gold and silver also play an important role in the marriage ceremony, where brides are often adorned from head to toe in gold jewelry. This reminds me of my own wedding.
[Rashmi is wearing approximately 500 grams of pure gold (about 17.6 ounces), including a necklace, earring, a tika and matha patti on her head, haath phool in her hands, bangles on her wrists, nose ring, arm band (bajubandh), and finger rings.]
So during wedding season, the demand for gold and silver increases. Our women customers prefer lightweight jewelry instead of heavy and bulky ornaments. Increasingly, it also appears they now prefer workmanship over weight when choosing jewelry made from gold. The Indian custom of women wearing jewelry has not changed, though they have started accepting 14 carat gold in order to make it more pocketbook friendly. And people in India wear jewelry to all kinds of parties.
We have also experienced an increased number of women customers in our shop. They still buy gold and silver jewelry, but now they prefer jewelry that is of designer quality and looks good. This is the biggest change I have noticed with women over the past few years; they want jewelry that is unique. They prefer wearing long earrings – danglers or hoops.
They also prefer multipurpose or conceptual jewelry – in other words, jewelry that can be worn in different ways. This attracts the woman customer, as they think they have more jewelry for the same price.
There is a different culture in south India, where the people are more bound to gold jewelry than silver. The parents still focus on giving gold to their daughters for a wedding present. Each part of India has different customs, but the one thing that remains common is that gold jewelry is bought by everyone for weddings.
Jeff: Ashish, you've stated you are very bullish on the price for gold and silver, and that a bubble for prices is ahead; why?
Ashish: To be clear, we are extremely bullish on the price of silver and gold. We believe that both will eventually advance into a full-fledged bubble that will surpass most investors' wildest dreams.
The world is changing and so is the way we invest. Gold and silver were once considered a marginal investment, worn mostly as jewelry or something that was stored in banks. Now it is making a comeback and has become a primary investment asset for many individuals and institutions.
In India, people are very futuristic and are so bound to the culture that they're buying gold and silver in advance. If they know that they are going to marry their daughter in three to four years, for example, they will purchase the gold now instead of waiting when prices will be higher. This will continue to underpin demand and push the price higher.
Jeff: Any other trends you see in India?
Ashish: From the average layman to the high-class educated person, they now want to invest in gold and silver. In fact, those who were investing in equities have been switching to gold and silver. Even the gold and silver ETF has become common in India. This is partly due to rising prices; keeping metal at home has become riskier, so they can avoid the risks of self-storage by using an ETF.
Even I have invested in gold and silver for my personal use apart from my business. Instead of buying equities, I now invest more in gold and silver, with the expectation of getting a good return.
I will conclude by just saying that based on what we see here every day, we believe gold and silver prices will continue to go up.
Jeff: Thanks Ashish and Rashmi.
Gold and Silver HEADLINES
Investment in Indian Gold ETFs Soaring (Mineweb)
Echoing the main article in today's missive is this piece from Mineweb: according to data from the Association of Mutual Funds in India, total assets of gold ETFs soared 161% to 97.95 billion rupees (US$1.96 billion) as of February 29, up from 37.44 billion rupees (approximately US$827.4 million) a year ago.
High rupee prices for the yellow metal may negatively impact jewelry purchases, but on the other hand they may prompt "more back benchers to rush in and invest in gold ETFs."
Analysts say that investors in India expect gold prices to shoot up further in the coming years, which should attract more investors to the ETF route.
Conflict between government and illegal miners in Peru is getting ugly. At least three protesters were killed and 32 people wounded during clash between police and wildcat miners on Wednesday, March 14.
Wildcat miners are rebelling against new decrees that "toughen laws against illegal mining and give the government more power to seize their equipment."
The government is taking measures to stop informal gold mining in the Amazon region and blames illegal miners for turning swaths of rain forest into a toxic desert and polluting rivers with mercury used to isolate gold. Given what we've seen of illegal mining operations around the world, we have no difficulty at all believing the allegations.
Peru is a leading producer of copper, zinc, and silver, and is the world's sixth-largest gold producer. The current events may have a negative impact on the stability of this jurisdiction, already not one of our favorites.
This Week in International Speculator and BIG GOLD – Key Updates for Subscribers
- One of our top takeover targets delivered important step-out drill intercepts last week. Read the details and our conclusions.
- A top-producer pick has announced its 2011 financials. The numbers are positive overall, though we nevertheless spotted some flies in the ointment; learn what we took out of the news.
- Two independent rating firms commented on whether shareholders should vote for the buyout of this BIG GOLD producer. Get the news and our recommendation.
- Our new silver pick from the March issue of BIG GOLD can be purchased at a lower price than when we first recommended it two weeks ago. Here's our take on why we think it's a keeper to the top of the bull market.
[Gold stocks are poised to rise as well, and if history is any guide they should significantly outperform the yellow metal itself. Details here.]