Learning about the Complex Gold Industry in India

Until I started my internship, I was not aware of the massive scale of the gold industry in India. The company I worked at, MMTC-PAMP, takes raw impure gold dore, refines it to purity, and sells it to vendors and individuals in the Indian market. During my internship, I examined the global nature of the gold industry and pondered on why the metal is so powerful today, especially in India. 

An aspect of the gold industry that initially caught my curiosity was how people have gone through great lengths to acquire the yellow metal. Today, it’s not as if gold is simply dug up from the ground; gold mining, and mining in general, is one of the most resource intensive and environmentally destructive industrial activities, as it releases toxic compounds into the air and water, is heavily dependent on fossil fuels, causes damage to the landscape around the mine, and require a large amount of water [1]. In turn, the gold mining process contributes to natural habitat destruction, global warming, societal and cultural displacement, and risks to human health.

However, in today’ model of global supply chains, I think that the end consumer often remains oblivious to the process by which their commodities are created, and the demand for a product is not greatly shaped by its material consequences. Since there are few mines in India, India gets most of its raw gold from abroad, and even despite the harmful consequences of gold production, gold is one of India’s largest imports. The skyrocketing demand for gold from Indian consumers – an average of 895 tons per year from 2009 to 2014, or 26% of the global annual demand, according to the World Gold Council, is a main contributor to the country’s current account deficit, where imports heavily exceed exports [2].  

Talking to people at my company, I learned more about the cultural importance of gold, a key driver of its demand. In Indian weddings, gold jewelry is given as a gift to the bride, and similarly to the marital context, gold also holds significance in the context of religion, as gifting gold is popular during the Hindu festivals of Akshaya Tritya and Diwali. While MMTC-PAMP primarily sells gold bars and ingots, it also sells minted products and coins with designs, many of which reflect the religious importance of gold.

Aside from its ornamental and gifting value, gold in India has also served as a form of currency and financial security, which is a large contributor to the importance of purity for Indian consumers. According to a Federation of Indian Chambers of Commerce & Industry study, almost 77 per cent of respondents cited that gold was a safe investment [2]. Unlike ornamental value, where design matters, the financial value of gold is based almost solely on its purity and quality. During my risk management project, my co-intern Nick and I analyzed the probability-adjusted cost of risk events for each step of the production line, from the moment the gold dore is received from abroad, to the various products the company sells. Although it took a while to adjust to the commute to the company’s gold refinery in Nuh, Haryana, which is located 2 hours away from Delhi, visiting the refinery, along with working in the corporate office, highlighted the meticulous steps that the company takes to ensure the of the purity and quality of the gold it produces. 

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Sunset at the gold refinery in Nuh, Haryana

The idea of investing in physical gold, as opposed to investing in a savings account, or other type of financial instrument, was new to me, but it opened my eyes to the fact that the global financial system has yet to offer its “benefits” to everyone on earth. Gold is not simply a commodity here, but a financial asset for many households. Although my internship focused primarily on analyzing the internal business model, I also found myself learning about the gold in a broader social and economic context. And sometimes, the best things learned are unexpected. 

[1] http://web.mit.edu/12.000/www/m2016/finalwebsite/problems/mining.html

[2] http://www.gold.org/research/why-india-needs-a-gold-policy

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About Soomin Shin

CW'19, Major in PPE, Intern at MMTC-PAMP, Delhi, summer 2017