New Delhi: Gold premiums in India, the world’s largest user last year, doubled in the past week as jewellers rushed to secure supplies after a surge in imports this month spurred the central bank to impose fresh curbs on purchases.

“The fees paid by jewellers to banks and other importers climbed to about $10 an ounce over the London cash price from as low as $4 an ounce a week earlier," said Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation. The Reserve Bank of India on 22 July made it mandatory for gold importers to set aside 20% for re-exports as jewellery.

“There will definitely be raw material shortage during the festival season," Soni said in a phone interview from New Delhi on Monday. “The international market is not that favourable right now and exports can’t increase just like that. We need relaxation on this for the survival of the industry as millions of artisans will be without jobs."

India’s rupee slumped to a record this month on concern that the current-account deficit will widen from a record in the year ended March as bullion imports surged. The government has doubled a tax on inbound shipments to 8% this year and curbed financing to tackle a surge in demand after bullion entered a bear market in April. New curbs were announced after imports rose in July, finance minister Palaniappan Chidambaram said on Monday, while appealing to people to moderate demand.

Festival demand

Imports in June shrank to about 38 metric tonnes from 162 tonnes in May, according to the jewellery federation. Inbound shipments may tumble 63% to 175 tonnes in the six months through December from a year earlier after imports were linked to re-exports, according to Bachhraj Bamalwa, a director at the jewellery federation. “The shortage in the local market may increase the premium paid by jewellers to about $25 an ounce by the Diwali festival in November," said Dharmesh Bhatia, deputy vice president for research at Kotak Commodities Services Ltd.

“Imports will definitely fall," Bhatia said by phone from Mumbai. “Availability of gold has already fallen and higher premium means the end consumer has to pay more. Jewellery prices will increase."

Buying and gifting gold ornaments in India is considered auspicious during festivals and weddings. The festival season runs from August to November followed by the wedding season through early May. A good agriculture harvest and lower prices may underpin Indian gold demand later this year, according to Societe Generale SA.

Investment demand

Spot gold gained 0.4% to $1,338.23 an ounce at 4:37 pm in Mumbai, paring losses to 20% this year. Gold for delivery in August jumped 1.2% to 27,975 ($471) on the Multi Commodity Exchange of India Ltd.

“With the rise in customs duty and increased premium, investment demand would take a hit in the medium term," CARE Research, a unit of Credit Analysis & Research Ltd., said in an e-mailed report on Monday. “Government is also expected to put more restrictions on purchase of gold coins and bars. Demand for gold coins and bars as investment was 345 tonnes in the year ended March, or 37% of the total demand of 918 tonnes," it said.

Consumption in India, which imports almost all the bullion it uses, accounted for 20% of global demand in 2012, according to data from the World Gold Council.

“The new central bank rules on imports may allow companies with more than 20% of exposure to exports to source gold easily compared with jewellers with more domestic sales," CARE said. “Some jewellers might have to subsidize their exports to attain the 80:20 ratio," it said.

The current-account deficit, the broadest measure of trade tracking goods, services and investment income, widened to $87.8 billion in the year ended 31 March from $78.2 billion in 2011-2012, according to official data. The deficit is the biggest risk to the $1.9 trillion economy, according to the central bank. The rupee, which touched a record low of 61.2125 per dollar on 8 July, fell 0.6% to 59.38 on Monday. Bloomberg

Close