Gold imports by India, the world’s biggest consumer last year, may tumble in the second half as the government curbs shipments to contain a record current-account deficit and stem a slide in the currency.
Inbound shipments may drop 22 percent to 372.5 metric tons in the six months through December from 478 tons a year earlier, according to a median of estimates from 10 importers, jewelers, analysts and trade groups compiled by Bloomberg. That may still boost full-year imports to about 902 tons from 860 tons in 2012, according to Bloomberg calculations based on data from the World Gold Council and the All India Gem & Jewellery Trade Federation.
Falling Indian demand for physical gold may deepen a bear market in bullion as some investors sell the metal amid signs of an improving U.S. economy. Shoppers from India to China and Turkey crowded retail outlets to buy jewelry, coins and bars in April after the precious metal posted the biggest two-day loss in three decades. Goldman Sachs Group Inc. says that gold will reach $1,050 by the end of 2014, while Credit Suisse Group AG forecasts $1,150 in about a year.
“I see no reason to buy more gold,” said Bharti Chandra, a 38-year-old housewife, dressed in a salwar, who was selling an old necklace in Mumbai’s Zaveri Bazaar, the largest bullion market in the country. “I wanted to buy new gold for the festival season. So I am selling the old one.”
India doubled a tax on gold imports to 8 percent this year and tightened financing to cut purchases and contain the deficit. Finance Minister Palaniappan Chidambaram yesterday appealed to Indians to moderate demand for the metal, while ruling out a complete ban on imports.
The currency touched a record low of 61.2125 per dollar on July 8. The Reserve Bank of India raised two interest rates on July 15 to help quell speculation and defend the rupee.
The jewelry federation, a group that represents about 300,000 jewelers, manufacturers, wholesalers, retailers and distributors, has asked members to halt coin and bar sales until the deficit stabilizes. The move may cut demand by 20 percent, according to the group.
Consumption in India, which imports almost all the bullion it needs, accounted for 20 percent of global demand in 2012, according to data from the World Gold Council.
Retail outlets in Zaveri Bazaar, where buyers lined up to buy ornaments, coins and bars in April, had few shoppers yesterday. “In April, we saw huge demand because of the price drop,” said Bipin Jain, proprietor of Vimalson Jewellers. “There is not much demand now as it is the off-season. Once the festivals start, demand will come in but not to the extent we saw in April and May. The restrictions may reduce imports.”
The current-account deficit, the broadest measure of trade, tracking goods, services and investment income, widened to $87.8 billion, or 4.8 percent of the gross domestic product, in the year ended March 31 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.
“Demand will be less as there are so many restrictions on import of raw materials,” said Haresh Soni, chairman of the jewelry federation. “A lot of buying took place in April and May. Investment demand is also weak.”
India’s gold imports will be 300 tons to 400 tons in the second quarter, almost half total shipments for all of last year, the council said on May 29. Inbound shipments of gold and silver fell to $2.45 billion in June from $8.39 billion a month earlier, official data showed July 12.
Bullion futures in Mumbai fell to 24,830 rupees ($419) per 10 grams on June 28, the lowest since August 2011. The contract for delivery in August gained 0.5 percent to 26,592 rupees on the Multi Commodity Exchange of India Ltd. (MCX) at 5:31 p.m. in Mumbai. Spot gold in London fell 0.4 percent to $1,287.26 an ounce.
“Demand will be subdued for the next three to six months,” said Rajesh Mehta, chairman of Rajesh Exports Ltd (RJEX). “There won’t be any aggressive purchases happening now. There will be some demand increase because prices are low during the festival season but it will not be a substantial increase.”
The buying and gifting of gold ornaments is considered auspicious during India’s festival season, which begins in late August and runs through November and is followed by the wedding season, which lasts till mid-January.
Gold reached a 34-month low of $1,180.50 on June 28 after the U.S. Federal Reserve indicated it may slow bond purchases as the world’s largest economy improves. Prices rebounded from that low as physical demand increased and Fed Chairman Ben S. Bernanke said that the U.S. still needs stimulus.
“The festival season will see reemergence of demand and around that time, the harvest season will also begin and with the present state of the monsoon, it is expected to be a bumper harvest,” said Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt. “Genuine physical demand is not expected to moderate due to Reserve Bank of India measures.”
The monsoon, which accounts for 70 percent of the nation’s rain, was 16 percent above a 50-year average during the June 1-July 16 period, according to the India Meteorological Department. Abundant rains have boosted planting of the monsoon crops, brightening prospects for a bumper harvest and increases in incomes of farmers, who invest in gold mainly as savings.
“At the end of the day, there will be imports happening because people will always buy,” said Praveen Gupta, general manager for bullion at Shree Ganesh Jewellery House (I) Ltd. (SGJ), from Kolkata. “As a lay person, you are only bothered with the rates. If you are getting a cheaper price you will buy.”
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