March gold imports jump to 10-month high in India
As imports hit a high, it also seems likely baby steps towards easing restrictions on gold import will be taken as elections near.
Posted: Monday , 07 Apr 2014
Mumbai (Mineweb) -
India’s gold imports in March rose to nearly 50 tonnes, the highest since the Reserve Bank of India’s import curbs came into force in May last year, according an estimate by the the All India Gems and Jewellery Trade Federation, an organisation that caters to more than 300,000 jewellers. Last month, Indian imported around 25 tonnes of gold, despite the curbs on the precious metal.
With India's central bank allowing more private banks to bring in the metal, importers had rushed in with their orders, he added. Moreover, with prices moderating in the local market, amidst expectations that the curbs might be lifted any time soon, traders said gold imports could stay high for some more time.
Finance minister P Chidambaram has indicated that the government could further ease restrictions on gold imports, and that the relaxations made a few days ago when more banks were allowed to import gold, was the first in a series of measures unrolled by the government to relax curbs.
After successfully weathering India's high current account deficit scare in the just concluded fiscal, RBI governor Raghuram Rajan has also said he favoured easing of curbs on gold imports, even as he stressed on the need to do it in a slow and steady manner.
"I think what we have to do is slowly and steadily take actions to remove some of these curbs (on gold imports)," Rajan told analysts at the post policy conference.
Chidambaram said the government has "pulled back" the economy from a difficult situation and put it back on a high growth path. He said the economy has "clawed back" to 4.4% in Q1, 4.8% in Q2, and would be around 5.2% in Q3 and Q4 taken together.
"Very few countries have been able to do this over the last 18 months. While I am not entirely pleased with what we have been able to achieve, I must emphasise that we have achieved our goals in fair measure," said the finance minister.
India's gold imports has been the second biggest import bill after crude, leading to higher current account deficit (CAD), which had touched 4.8% of GDP in FY13. However, with the curbs on gold imports, CAD had been brought to about $35 billion in FY14, said Chidambaram.
The statements by government officials helped cool spot market premiums for delivery to $35 an ounce from $50 a week ago. Analysts added that the precious metal has arrived through the official channels and is in large quantities especially in the last week of March, clearly led by direct imports by export oriented units in the gold and diamond jewellery sector.
Traders added that imports of the metal are set to rise further this month, as demand is likely to surge around Akshaya Tritiya, celebrated across the country on May 2 this year, and considered a very auspicious occasion to buy gold.
"Prices are down and domestic demand is already looking up. Demand is likely to get a further boost from low prices in the days leading up to Akshaya Tritiya, since many people tend to book their gold jewellery prior to the day and take delivery on that day given the auspicious timing," said Praveenbhai Zaveri, bullion trader at Mumbai's Zaveri Bazaar area.
He added that the return of consumers to the bullion market was a heartening sign for retailers, who have been reeling under the dry spell of the last few weeks, with few consumers willing to buy gold reigning at high premiums.
Moreover, volumes at the commodity exchange that had begun to take a hit after a commodity transaction tax was introduced, has got a new avenue to shore up strength. Exchanges are beginning to use gold hedge contracts to penetrate in what has been a territory of the Multi Commodity Exchange.
While the agriculture centric National Commodities and Derivatives Exchange (NCDEX) was the first, ACE Derivatives and Commodity Exchange, a Kotak Mahindra Group anchored bourse, has announced that it has commenced trading in gold hedge futures contracts.
ACE’s contract is a slightly modified version, with import duty being considered for calculating the local gold price, a feature that is not there in the NCDEX contract.
An ACE spokesperson said volumes and liquidity in commodity derivatives would get a boost if the contract had some features refecting the uncertainties, which is why the exchange has added import duty.
ACE has launched three contracts, expiring in the months of May, July and September. The trading unit for the contract is one kilogram. The exchange expects the gold hedge contracts would help gain more participation, as these are pure price contracts.
Dilip Bhatia, chief executive at ACE said in a prepared statement last week: "Gold hedge futures contracts would mirror the prices of gold prevalent in the international market, and inclusion of customs duty would provide an efficient price risk hedging mechanism for all market participants. The expiry is aligned with currency futures expiry, which mitigates the currency volatity risk as well."