Last week, the World’s largest democracy successfully concluded a week long voting process. One of the “promises” made by the new government was to reduce restrictions on Gold. As a matter of culture and lack of faith in banks, a large percentage of the over 1 billion Indian population prefer to put a good portion of their savings into gold jewelry. Indeed, India consumes 25% of the World gold production.

Last year, the Reserve Bank of India added new restrictions on gold imports in an attempt to curb demand for the precious metal and reduce the country's current account deficit. Indeed, at that time Indian inflation was becoming a concern.

However, the new government is expected to lift the restrictions. According to Bachhraj Bamalwa, a director with the All India Gems & Jewelry Trade Federation, India’s new government could cut the 10% import tax on gold in July and ease back on rules for importers to supply 20% of purchases to jewelers for re-export by. As a result, analysts were stating that there would be a new flurry of gold imports and push up gold prices. Indeed, for a few days, there were indications that could happen. But wait.

First, the actual policy implementation is not a done deal and even if it were, how long would it take to put into effect? Moreover, there is a possibility that an increase in Indian demand may also spur an oversupply coming into India. What would that mean? Yep, lower prices. Moreover, if Indians believe in the possibility of an influx of gold and a reduction in the price of gold, might they not decide to sell some of their gold and push prices even lower?

Well, if you look at the Chart for GLD, you can see a rather uninspiring picture as of last Friday. But there is an informal anecdotal gold index in India. It’s called the “Housewife Index.” Supposedly, this is a survey of Indian housewives to determine their take on gold. According to the latest survey, the buy gold index is at 70%. Of course, the publishing of these informal surveys requires a bit of skepticism.

As traders, we know that the truth will reveal itself in the price. And as of right now, gold is as flat as Twiggy.

To see how the Price of Gold and the Euro correlate view our post.