India‘s economic boogeyman, the monthly trade deficit, continues to rear its ugly head, this and every time, driven be the country’s insatiable desire for gold which is so powerful, the country took full advantage of the plunge in gold prices, and saw business imports of gold soar by 138% y/y in April, forcing the trade deficit to hit a 3 month high of $17.8 billion as more fiat left the country in return for bringing in more of the “barbarous relic.” Gold imports more than doubled on both a Y/Y and sequential basis, with gold accounting for $7.5 billion, or 18% of total imports, compared to $3.1 billion in March.
India‘s trade deficit worsened more than expected to US$ 17.8 Bn in April after a sharp improvement in March, as per provisional data from the Ministry of Commerce and Industry.
The surprise came from an increase in imports, led by a sharp increase in gold/silver imports which increased by 138% yoy in April. Gold imports in April were $7.5 billion, compared to $3.1 billion in March. This was driven by the sharp fall in gold prices during the month. Oil imports growth also recovered to 3.9% yoy after a sharp fall of 16.6% yoy in the previous month. However, imports growth declined sequentially.
Export growth moderated to 1.6% yoy suggesting a weaker external demand environment in April. On a qoq basis, exports were up 3.6% sa, the same as in March.
It wasn’t only India where demand for gold manifested itself in the economic bottom line. Here is how gold lead to a push in Chinese retail sales:
Sequential mom in April fell to negative territory, which reflects weak aggregate demand growth. Because last April saw one of the softest sequential mom growth momentum on record (including late 2008), the yoy growth of IP was up slightly. Heavy industry IP rebounded to 9.6% yoy in April from 9.1% yoy in March, while light industry IP rebounded to 8.5% yoy in April from 8.2% yoy in March.
The slight rebound in retail sales was boosted by higher consumer prices, the rush to buy gold, which occurred towards the end of April (April jewelry sales was 72% yoy, up from 17.7% in January-March period), and strong automobile sales (which accelerated to 13.4% yoy from 10.7% in March). This is partially offset by the continued moderation in the sales of the catering industry, which saw its growth fall to 7.9% yoy from 8.7% yoy in March.
And form SocGen:
Following a sharp decline in the gold price, Chinese households’ purchase of jewellery surged 72% yoy in April, substantially faster than the 17.7% yoy in Q1. This gold rush contributed nearly 2ppt to the headline in April, up from about 1ppt in March.
So a surge in gold demand is suddenly… good economic news? Funny how that works.
As long as the price suppression of paper gold prices continues, don’t expect any notable changes to both of the above trends.