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Business News/ Market / Stock-market-news/  Gold premiums in India seen tumbling as curbs on imports eased
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Gold premiums in India seen tumbling as curbs on imports eased

Shipments are seen at 30 metric tons this month and may increase by 10 tons to 15 tons in June

Demand may climb to as high as 1,000 tons this year, said Somasundaram P.R., WGC’s managing director for India. Photo: AFPPremium
Demand may climb to as high as 1,000 tons this year, said Somasundaram P.R., WGC’s managing director for India. Photo: AFP

Mumbai: Gold premiums in India, the world’s second-biggest user, are poised to slump to the lowest level in 10 months as reduced curbs on imports boost supplies, according to the All India Gems & Jewellery Trade Federation.

The fees that jewelers pay banks and other importers for gold may drop to $25 an ounce to $30 an ounce over the London cash price next month, the smallest since August, said Bachhraj Bamalwa, a director at the association that represents 300,000 jewelers and bullion dealers. The premium was $50 on Tuesday.

Imports by India, which made up for about 25% of global demand in 2013, are seen gaining after the central bank allowed more agencies to import the precious metal last week. Shipments are seen at 30 metric tons this month and may increase by 10 tons to 15 tons in June, Bamalwa said. Curbs on overseas purchases may be further relaxed by Prime Minister Narendra Modi’s government, which took office this week, he said.

The new agencies allowed to import gold are in the process of completing formalities now and imports will start coming in soon, Bamalwa said by phone from Kolkata. This will increase supply in the domestic market and reduce the premiums, he said.

The Reserve Bank of India (RBI) last week allowed star and premier trading companies approved by the Directorate General of Foreign Trade (DGFT) to import gold under a rule that requires shippers to supply 20% of bullion to jewelers for export. The RBI also eased some financing rules allowing banks to give gold metal loans to jewelers.

Narrowing deficit

The government raised import taxes three times to 10% last year and linked imports to re-exports in order to reduce a record current-account deficit and a slump in the rupee. Curbs on gold imports contributed to the gap narrowing to $32.4 billion in the financial year ended 31 March from a record $87.8b a year earlier, the RBI said on 26 May. The rupee reached an 11-month high of 58.3350 on 23 May and has gained 2% this month against the US dollar.

The sharp narrowing of the current-account deficit was mostly due to restrictions on gold imports, Indranil Pan, Madhavi Arora and Suvodeep Rakshit, analysts at Kotak Mahindra Bank, said in a report on 26 May. Assuming a relative relaxation on gold import restrictions this year, purchases are seen rising about 30% to 800 tons, the report said.

There is a case for relaxation of import restrictions as the current-account deficit has come down and simultaneously we are seeing a drop in gold prices, Vicky Sajnani, associate vice president of commodities and currencies at JM Financial Serviced Ltd., said by phone from Mumbai.

Futures tumble

Finance secretary Arvind Mayaram discussed import curbs with newly appointed finance minister Arun Jaitley on Tuesday, he told reporters in New Delhi.

Futures on the Multi Commodity Exchange of India Ltd. in Mumbai tumbled to the lowest level in 10 months on Wednesday, extending a 7.9% decline last year. Gold for immediate delivery in London retreated to the lowest level in more than 15 weeks today before trading little changed at $1,265.23 an ounce at 12:12 pm in Mumbai.

Consumption in India will probably increase in the second half as the new government may relax import curbs and festivals spur purchases, the World Gold Council said 20 May. Demand may climb to as high as 1,000 tons this year, said Somasundaram P.R., WGC’s managing director for India. That compares with 974.8 tons in 2013, WGC data showed.

Some pickup in demand on the back of lower premiums in the local markets is possible, Sajnani said. There will not be a furor in demand as this would push up international prices. BLOOMBERG

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Published: 28 May 2014, 02:49 PM IST
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