Gold imports by India, the world’s biggest consumer after China, will probably decline for a third year as the government keeps curbs on shipments to prevent the current-account deficit from widening and to support the rupee.
Foreign purchases may drop 15 percent to 700 metric tons in 2014, according to the median of estimates from nine analysts and jewelers including Gitanjali Gems Ltd. and Rajesh Exports Ltd. compiled by Bloomberg. Imports fell 44 percent to 350 tons in the first half, government and World Gold Council data show.
Weakening demand from China and India, which account for half of global consumption, may limit increases in bullion prices which advanced 8.8 percent this year on increasing tensions in Ukraine and the Middle East. Usage in China dropped 19 percent in the first half as investors bought fewer bars and coins. Indian Finance Minister Arun Jaitley retained import curbs in his annual budget last month.
“I don’t see the measures going away immediately,” said Devendra Pant, chief economist at India Ratings & Research, the local unit of Fitch Ratings. “If we allow gold imports to grow, that will have an impact on our current account,” he said by phone from New Delhi.
Gold for immediate delivery traded at $1,307.68 an ounce at 5:39 p.m. in Mumbai today. Futures on the Multi Commodity Exchange of India, which have risen 0.7 percent this year, dropped 0.4 percent to 28,610 rupees per 10 grams.
India increased the gold import duty three times last year to 10 percent as it sought to narrow the record current-account deficit and stem a decline in the currency. Importers also have to supply 20 percent of their cargo to jewelers for re-export.
“We can see a pick-up in imports only next year as things are slowly opening up,” said Mehul Choksi, chairman of Gitanjali Gems, the biggest listed gold and diamond jewelry retailer by revenue. “The government has taken some measures such as allowing star trading houses to import, but the measures are still evolving, so it will take some time for the momentum to increase,” he said by phone from Mumbai.
Inbound shipments surged 65 percent in value to $3.12 billion in June from a year earlier after the central bank allowed more banks and traders to buy gold overseas. Rising imports could pressure the current-account deficit and prompt a strategy change from easing to more curbs, UBS AG said July 17.
“June imports were very high so the decision on easing the restrictions took a back seat,” said Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation. Purchases in the second half may be 250 tons to 300 tons, he said by phone from Kolkata.
The controls helped narrow the deficit to $32.4 billion in the year ended March 31 from a record $87.8 billion a year earlier, the central bank estimates. That was the lowest shortfall since 2008-2009, according to central bank data.
Supply is probably sufficient to meet demand during the festival season with more agencies allowed to ship gold, said Rajesh Mehta, chairman of Rajesh Exports. The government may not alter the rules anytime soon, he said by phone from Bengaluru.
“More evidence will be required, this could mean a few more months of gold import data, particularly around this peak seasonal period, before the government feels comfortable enough to make an assessment of where gold market policy should be headed,” UBS AG analysts Edel Tully and Joni Teves said in a report today.
The central bank is monitoring imports and isn’t worried by the surge in June, Governor Raghuram Rajan said Aug. 5. “I don’t think it’s the government’s intent to sit on the special measures forever. As the economy improves, as exports improve, it will create room for unwinding these measures,” he said.
Premiums or the fees that jewelers pay to buy gold from importing banks and agencies have plunged to $8 an ounce over the cash price in London from as high as $160 in December, according to Bamalwa. “Once demand picks up during the festival season, we can see them rising by maybe $10-$20,” he said.
Gold is bought during festivals in India and for weddings as part of the bridal trousseau. The festival season runs from late August to October and is followed by the wedding season.
“The government will be happy with annual imports of 700 tons to 750 tons,” said Prithviraj Kothari, vice president of the Indian Bullion and Jewellers Association Ltd. “India’s economy is in much better shape now compared to last year so we can expect the government to ease the restrictions in couple of months,” he said by phone from Mumbai.