India Gold Premiums Seen Extending Climb to Record on Curbs

Gold premiums in India, the world’s largest consumer last year, may extend their advance to a record as central bank restrictions halt imports.

The fees paid by jewelers to banks and other suppliers have jumped to about $40 an ounce over the London cash price from $30 in the week ended Aug. 2, said Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation. Premiums may surge to $100 if the government doesn’t ease the rules, said Bachhraj Bamalwa, a director at the federation, which represents about 300,000 jewelers and bullion dealers.

Banks and traders have suspended imports since the Reserve Bank of India made it mandatory on July 22 for shippers to set aside 20 percent of their purchases for re-export as jewelry, said Soni. A decline in imports may accelerate a 21 percent slump in global prices this year. The metal is set to end a 12-year bull run as investors shun gold as a store of value amid speculation the U.S. central bank may scale back stimulus.

“There is a halt in imports completely,” Soni said in a phone interview on Aug. 8. “When one goes to the market to buy gold the dealers are charging heavy premiums. People who have stocks from previous imports are taking benefit of the curbs.”

Doubling Tax

The central bank linked imports to re-exports after shipments climbed last month from June, Finance Minister Palaniappan Chidambaram said July 31, as he appealed to people to moderate demand. India doubled a tax on imports to 8 percent this year to tackle a record current-account deficit that’s pushed the rupee to an all-time low against the U.S. dollar.

The shortage may deny jewelers supplies before the festival and marriage seasons, Bamalwa said. The premium may climb from about $45 until the new import rules are clarified or there is scope for gold to find its way into the country through unofficial channels, according to Barclays Plc.

Gold is bought in India during festivals, for marriages as part of the bridal trousseau and gifted in the form of jewelry by relatives. The festival season in India runs from August to October followed by the wedding season from November to December and from late March through early May.

Spot gold traded 1 percent higher at $1,327.17 an ounce at 2:38 p.m. in Mumbai. The metal rebounded 12 percent since reaching a 34-month low of $1,180.50 on June 28. Gold for delivery in October rose 1.5 percent to 28,337 rupees per 10 grams on the Multi Commodity Exchange of India Ltd.

Tumbling Shipments

Imports may tumble below 150 tons in the six months through December, less than the 175 tons estimated on July 22 after rules linking inbound shipments to re-exports were announced, according to Bamalwa. The country imported 478 tons during the same period in 2012, according to World Gold Council.

The shortage cut the capacity utilization of jewelry units to about 50 percent, said Soni. The industry employs about 20 million artisans, he said.

“We are requesting the government to relax the import norms otherwise the whole industry will collapse and joblessness will increase,” said Soni. “We have requested the finance minister to consider a proposal to encourage use of idle gold lying in households. This will reduce imports.”

Importers need to show the government proof of actual exports before ordering the next consignment, which will disrupt supplies, said Pankaj Parekh, vice chairman of the Gem & Jewellery Export Promotion Council. Jewelry exporters need an average 30 days to 45 days to submit proof of shipment, he said.

Consumption in India, which imports almost all the bullion it uses, accounted for 20 percent of global demand in 2012, according to data from the World Gold Council.