Despite Govt’s bid to curb imports, price dip in April fuelled buying in Q2 of 2013

In just the second, April-June, quarter of 2013, India’s gold imports are expected to be almost half the imports of whole of 2012.

According to the World Gold Council, imports in April-June are headed for a record 300-400 tonnes, which is a near 200 per cent year-on-year increase.

While this strong demand may spell good news for the gold industry, it could mean headaches for policymakers. The country is facing a record current account deficit, partly stoked by Indian consumers’ appetite for the yellow metal, compelling the Government to take several measures since January to rein in imports.

Positive sentiment

Despite the fall in price in April, the WGC sees extremely positive sentiment towards gold in the two largest markets — India and China. Purchasing behaviour has been extremely strong, which indicates sustained demand over 2013 as a whole, WGC said.

The market update came on a day the WGC Chief Executive Officer Aram Shishmanian was visiting India. With robust gold imports in April and May, the Government is likely to come up with more steps to reduce consumption, it is learnt.

Ban ruled out

But a ban on gold imports is ruled out, official sources said. The Government may further increase the import duty on gold, or limit the quantum of imports by state-run agencies. In April, the value of gold imports stood at $7.5 billion, more than double from a year earlier.

In quantity terms, the actual imports were 100-120 tonnes, higher than the average monthly import level of 70-80 tonnes.

The sharp drop in price in mid-April led to some outflows in gold-backed exchange traded funds (ETFs) as US investor sentiment shifted. Gold prices fell from $1,535.5 an ounce on April 12 to an intra-day low of $1,320 an ounce on April 16 before stabilising around $1,390 an ounce.

Bullion consumers in India are likely to take possession of the supply freed up from such ETFs, according to the WGC.

ETF market

Although ETFs represent a very small proportion of the gold demand (averaging 6.5 per cent over the last three years), the ETF market and, in particular, the futures market have a direct impact on price formation and the gold spot price.

Consumer purchases of gold in the form of bars, coins and jewellery represent 72 per cent of gold demand.

No tie-ups

It is learnt that WGC is not looking to tie-up with any private Indian banks for now to promote any of its gold-related products.

WGC had recently partnered India Post and Reliance Money to offer a seven per cent discount to consumers purchasing gold coins from 970 post offices on the occasion of Akshaya Tritiya.

This offer, however, will be valid till end June.

srivats.kr@thehindu.co.in

(This article was published on May 30, 2013)
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