Along with yesterday’s news of increasing Indian gold sales, today shows another healthy sign. Commerzbank reports Indians are now willing to pay a slight premium for their retail gold, raising overall gold prices in the country.
The way this works is pretty straightforward: Any time a gold buyer is willing to pay more than the London spot price, widely held to be the price for gold on international markets, it’s called a premium. It’s a premium because they could theoretically go somewhere else and buy it at the market price, rather than pay the “additional” premium. So there must be additional value there, by all economic logic. This isn’t completely unheard of; we covered such activity on the Shanghai Gold Exchange (SGE) last November. What it indicates is that there is indeed demand for gold in India, despite the new tax structure and money laundering regulations.