From John Brimelow on the India gold premiums:

Indian ex duty premiums AM: $1.16 (PM unavailable for some reason), with world gold at 275.10.
Below legal import point. Several stories on the news channels speak of the seasonal slowdown in
demand: one actually blames heavy rains! In fact the Monsoon seems to be going well so far, to
judge by the Indian Government's wonderful website
http://www.imd.ernet.in/section/hydro/dynamic/seasonal-rainfall.htm

Dear Marcia,

Over the past ten years, India has emerged as the biggest gold market in the world, taking at least a
third of annual global mine production, and providing half or more of the growth in consumption.
Most of this goes into jewelry or bullion forms unique to the Indian market: costly to convert back
to good delivery form. This and other reasons leads to the belief that India is a very strong holder of
the gold she buys.

This situation is not unprecedented. In the middle of the 19th century, when the silver market was
flooded by Nevada's fabulously rich mines, a great deal of the metal went directly to India, then
experiencing an unprecedented economic expansion after the recent establishment of British rule.

The professional bears have therefore been very interested in denigrating India's buying
capabilities. They have helped in this by the Indian bullion dealers, whose interest is in maximising
volume. Being confident of their consumers appetite, they are usually willing to supply quotes to the
effect that demand is sluggish and the outlook poor.

So I got interested in the actuality. There is a Bombay Bullion dealers association, which supplies
local currency/size quotes carried in the media - who also pick up prices in other cities. For many
years gold had to be smuggled into India: now the government, in an astonishingly intelligent move,
allows legal imports with a 25 rupee per g. duty. There are some local taxes in Bombay; so, allowing
for all these costs and being precise about the time of day, it is practical to determine if domestic
Indian prices are sufficiently above world gold to allow the legal importation of the metal. This cuts
right through all the lies and mis- judgements about this crucial market.

For instance, during the October '99 post Washington Accord spike, Indian prices never fell to a
discount on world gold, so there was no possibility of Indian gold being shipped back overseas,
contrary to the loud claims of many bears at that time. The same happened in silver during the
Buffet spike. Abrupt spikes have a clear impact, but generally the Indians are doing a great job for
the friends of gold.

I once got an e mail from my friend Jim Grant of Grant's Interest Rate Observer,
http://www.grantspub.com/, saying that these are all details and when gold is ready, it will go (Jim is
a solid FOG). This is true. However, for those of us who have been designated Point Men in this
conflict, these questions are compelling. After all, a volcano watcher may only give a few hours
warning of a once-in three-centuries eruption. But to those dwelling on the mountain side, that
could be crucial.

So that is why I am so interested in Indian premiums.

PS

For a generation, gold importing was banned in India. There was, however, a large domestic free
market. Smugglers supplied incremental gold, but what premium it took to make this occur was
conjectural, because they had to run the risk of confiscation.

Now gold imports are legal, subject to a 25 rupee per gram duty. There are local taxes in Bombay,
but allowing for these and transportation costs, it is reasonably clear when legal imports are
warranted.

Of course, it is still profitable to smuggle - if you don't get caught.

This is the crux of the premium calculation.

JB


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