Mumbai: Gold imports by India, the world’s largest consumer, are set to exceed 100 tonnes for a second month in May as jewellers rush to beat central bank curbs on overseas bullion purchases by banks, a refiner said.

The biggest slump in gold prices in more than three decades on 15 April spurred banks, traders and jewellers to import more than 100 tonnes last month, said Rajesh Khosla, managing director of MMTC-PAMP India Pvt. Purchases this month will match April’s imports, he said. MMTC-PAMP’s refinery in northern Indian state of Haryana can process 100 tonnes of gold, 600 tonnes of silver and make 2.5 million pieces of coins a year, he said.

The Reserve Bank of India (RBI) will issue guidelines by the end of this month to restrict banks from importing gold on a consignment basis as it seeks to reduce domestic demand and curb a record current-account deficit, the central bank said on 3 May. Banks will be allowed to buy on a consignment basis to meet only genuine needs of exporters of jewellery. The bulk of the imports by banks now is on a consignment basis that doesn’t require them to fund the purchase, RBI said.

The imports this month look as good as in April as everyone is trying to import as much as possible before the RBI guidelines are issued, Khosla said in an interview in New Delhi on Tuesday. The price looks good, let’s import,’ every jeweller seems to be saying. Time will tell whether they were right or not?

Supply shortage

Retail buyers flocked to jewellery stores and bank outlets in India to buy ornaments and coins after gold plummeted 14% in two sessions through 15 April in the worst slide since 1983, causing a shortage in supplies. The Reserve Bank has said the current-account shortfall, exacerbated by bullion imports, and consumer-price inflation above 10% are among risks that constrain room for further interest rate cuts to revive economic growth from the lowest in a decade.

At current prices, it looks the imports will be more than last year, said Khosla, whose refinery is a venture between state-owned MMTC Ltd and PAMP SA of Switzerland. If the central bank wants to restrict, imports will fall.

India’s gold imports dropped 11% last year to 860 tonnes from a record 969 tonnes in 2011, the World Gold Council estimates. Demand for jewellery and investment fell to 864.2 tonnes in 2012, the second straight year of decline, it said.

Tripling taxes

India has tripled import taxes on gold from as low as 2% in January last year after the current-account deficit, the broadest measure of trade, widened and the rupee slumped to a record against the US dollar. Finance minister P. Chidambaram has blamed the deficit on a passion for gold, saying the gap is a greater concern than the worst budget deficit among the so-called BRIC nations. The deficit widened to $32.6 billion in the last quarter of 2012.

While bullion has rebounded from a two-year low of $1,321.95 an ounce on 16 April, driven by coin and jewellery demand from the US to China and India, it is 24% below the record $1,921.15 reached in 2011. Gold for immediate delivery rose as much as 0.4% to $1,458.85 an ounce, and was at $1,454.59 at 10:24 am in Mumbai.

The global price of gold seems to have stabilized at current levels, Khosla said. Further increase in the price depends on economic recovery in the US and Europe.

Bear market

Gold fell into a bear market in April as investors sold the metal in favour of riskier assets, spurred by expectations that the global economy was recovering. Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, fell 0.4% to 1,057.79 metric tonnes on Tuesday, the lowest level since March 2009, according to data compiled by Bloomberg.

Retail demand for gold in India was good ahead of the wedding season and the Akshaya Tritiya festival on 13 May, Bachhraj Bamalwa, a director and former chairman of the All India Gems & Jewellery Trade Federation, said on Tuesday. Jewellers are paying between $10 an ounce and $12 an ounce over the London cash price to secure supplies, compared with $2 an ounce before the price slump, he said.

Akshaya Tritiya festival is considered by the country’s more than 900 million Hindus as the traditional day to buy precious metals. Bullion is bought during festivals and marriages as part of the bridal trousseau or gifted in the form of jewellery by relatives.

The appetite for gold continued to be very strong in India and an index of physical flows showed demand five times that of a 12-month average, UBS AG said on 3 May. Appetite is likely to hold up as we get closer to the Akshaya Tritiya festival, it said.