The Modi government continues to push the Gold Monetization Scheme where consumers buy real gold during Diwali

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(Kitco News) – Strong demand for gold and silver during Dhanteras in India and Diwali is putting pressure on the country’s economy and prompting the government to refocus on its Gold Monetization Scheme.

Among economists, there are growing expectations that India’s gold and silver exports will push the country’s trade beyond the $30 billion target set in July. Last month’s trade deficit came in at $22.47 billion, according to government records.

Undoubtedly expectations are coming as the country saw the value of gold and silver last week during the five days of celebrations. According to popular reports, several shops saw sales on Diwali increase between 15% and 20% as shoppers took advantage of the low gold prices.

Market analysts at Heraeus said that the Indian festival and wedding season meant that the fourth quarter saw the demand for gold in India. The researchers said that adding to the demand for energy this year is the increase in income that follows the monsoon season; however, The European precious metals firm added that despite strong sales, demand is unlikely to surpass the record set last year.

“In Q4’21, India’s quarterly gold production rose to 344 tonnes (source: World Gold Council) due to holiday-driven buying and lower demand from a year ago when lockdowns halted activity. This was up 44%. than the average level of demand for Q4,” the analyst said. “Despite the high number of infections at the beginning of this year, the demand has not been significantly affected, which means that the increase is not clear this year. Therefore, the annual demand in India is likely to be slightly lower year-on-year.”

While the value of gold is expected to remain below last year’s records, silver is a completely different story. India’s silver production is expected to exceed 10,000 tonnes this year, a record high and double year-on-year.

According to some economists, the question now facing the Modi government is how to convince consumers to deposit their gold with the government to participate in the economy.

Under the government policy, citizens can deposit their gold in banks for a fixed period of time and earn interest on their gold. At the end of this period, buyers can get the same amount they earned in gold or cash. Gold is melted down and recycled back into the economy. The aim is to increase the country’s gold reserves, reduce imports, and reduce the huge trade deficit.

The program was first launched in 2015 and support has grown over the past seven years. Only about 25 tons of gold came out of the program, compared to the 25,000 tons estimated by the WGC to be held in private households and religious organizations and temples.

According to some experts, the main reason why buyers hesitate to use this system is that their gold is precious and it is an heirloom, which they do not want to be destroyed.

During Diwali, gold jewelery is often bought as a gift as it symbolizes wealth and prosperity.

Disclaimer: The views expressed in this article are those of the author and may not necessarily reflect a The opinion of the company Kitco Metals Inc. The author has made every effort to ensure that the information provided is accurate; however, even Kitco Metals Inc. nor can the author guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to exchange products, securities or other financial instruments. Kitco Metals Inc. and the author of this article accepts no responsibility or liability for the use of this publication.

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