Gold import may dip to a third,buyers see sense

The weakening rupee,along with the efforts of the government and the Reserve Bank of India,could see the country’s monthly gold imports decline to 40-50 tonnes each during June and July,a sharp dip from 142 tonnes in April and 162 tonnes in May,the Bombay Bullion Association said Monday.

Written by Devangi Gandhi | Mumbai | Published: June 11, 2013 12:21 am

The weakening Indian rupee,along with the efforts of the government and the Reserve Bank of India,could see the country’s monthly gold imports decline to 40-50 tonnes each during June and July,a sharp dip from 142 tonnes in April and 162 tonnes in May,the Bombay Bullion Association said Monday.

“Looking at the trend of the last 10 days,June imports are likely to be capped at 50 tonnes,” said Suresh Hundia,president (emeritus),Bombay Bullion Association.

Hundia said the decline in imports is more a result of weak demand than the recent curbs by the government. According to him,the end of the festive season,coupled with the weakness in the rupee,which pushed up the domestic price of gold could be key factors behind the decline in gold imports this month and the next.

The fall in gold imports could come as a huge relief to the government,battling a record high current account deficit of 6.7% of GDP,which in turn has pushed the rupee to a record low.

While gold imports had surged in April and May due to the steep fall in global prices,experts now believe the market will once again start to follow the traditional demand cycle.

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But experts now believe the market will once again start to follow the traditional demand cycle. Going by that trend,the monsoon season typically sees weaker demand for gold. During April-June 2012,total imports of gold stood at 152 tonnes. However,given the surge in April and May imports,the April-June quarter will still see much higher import even if imports decline sharply during the current month.

The government has imposed several measures to limit gold imports,including raising gold import duty to 8%,restricting gold import by banks on consignment basis and capping the gold to value ratio of gold loan companies. In particular,the move to restrict imports on a consignment basis could have a significant impact,say experts.

“This measure means traders have to obtain the yellow metal with full payment and subsequent sales realisation. In turn,they may have to bear a funding cost of about 13% to order the needed quantity unlike earlier when the payment was made on receipt,” said Sudheesh Nambiath,India analyst with the precious metal consultancy Thomson Reuters GFMS.

According to Nambiath,the funding cost will also impact the working capital management of physical traders who will now have to account for this cost while planning their inventories.

“The official restrictions will bring down imports also,as jewellers and traders prefer to sell their current holdings in a weak demand environment,” said Mukesh Kothari,director of RiddiSiddhi Bullions. Kothari also pegs the expected imports of gold during June-July at an average of 40 to 60 tonnes.

Kothari said curbs on imports and other limitations would though encourage smuggling of gold. He added the industry would have benefitted more if the government had considered measures to boost exports rather than just try and curb imports.

“Currently,annual gold exports aggregate at about 100 to 200 tonne which is just over 10% of net imports. The government could have boosted the exports to balance the gold trade instead of just focusing on import side,” added Kothari. Nambiath added that of the 2012 exports estimated at about 220 tonne,nearly 170 tonne was on account of “round tripping” done through repackaging rather than actual exports.

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