Gold Imports To Be Curbed By India And Boosted By China

Fears of physical tightness and higher prices in India have lead jewelers rushing to build up Gold stocks and inventories. Gold Imports by India, the world’s largest consumer, are set to exceed 100 metric tons for a second consecutive month in May as jewelers rush to beat central bank curbs on overseas bullion purchases by banks. The appetite for Gold continued to be “very strong” in India and an index of physical flows showed demand five times that of a 12-month average, UBS AG said on May 3. Appetite is likely to hold up as we get closer to the Akshaya Tritiya festival on May 13, considered by the country’s more than 900 million Hindus as the traditional day to buy precious metals, especially Gold.

Gold fell into a bear market in April as investors sold the metal in favor of riskier assets, spurred by expectations that the global economy was recovering. While Gold Bullion has rebounded from a two-year low of $1,321.95 an ounce on April 16, driven by Gold coin and Gold Jewelry demand from the U.S. to China and India, it is yet 24% below the record $1,921.15 reached in 2011. Gold Holdings in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, fell 0.4% to 1,057.79 metric tons yesterday, the lowest level since March 2009, according to data compiled by Bloomberg.

India aims to restrict Gold Imports:
India’s Gold Imports dropped 11% last year to 860 tons from a record 969 tons in 2011, while demand for jewelry and investment fell to 864.2 tons in 2012, the second straight year of decline. At current prices and demand, it looks the Gold imports will exceed far over last year, if not to a record. This is sending shivers to the Indian Government which is struggling to curb a record current account deficit. The Reserve Bank has said the current-account shortfall, exacerbated by bullion imports, and consumer-price inflation above 10% are among risks that constrain room for further interest rate cuts to revive economic growth from the lowest in a decade. The RBI – Reserve Bank of India, will issue guidelines by the end of this month to restrict banks from importing gold on a consignment basis as it seeks to reduce domestic demand and curb a record current-account deficit, the central bank said on May 3.

Banks will be allowed to buy on a consignment basis to meet only genuine needs of exporters of jewelry. The bulk of the imports by banks now are on a consignment basis that doesn’t require them to fund the purchase, RBI said. The imports this month look as good as in April as everyone is trying to import as much as possible before the RBI guidelines are issued, reported Bloomberg. India has tripled import taxes on gold from as low as 2% in January last year after the current-account deficit, the broadest measure of trade, widened and the rupee slumped to a record against the US dollar. Finance Minister P. Chidambaram has blamed the deficit on a “passion” for gold, saying the gap is a greater concern than the worst budget deficit among the so-called BRIC nations. The deficit widened to $32.6 billion in the last quarter of 2012.

The Economic Times on India’s curbs on Gold Imports:
Even though gold is said to have entered a bearish phase there is no respite for Indian consumers. They may end up paying more for the yellow metal if the RBI’s recent move to restrict banks’ bullion imports becomes effective. Jewellers feel that the directive that allows banks to import bullion only on a consignment basis to meet the genuine needs of jewellers will completely jeopardise the gold supply in the domestic market. It may even push up the prices, which will subsequently be passed on to the consumers.

Jewellers in big cities were reportedly paying as much as Rs 800 ($14.73) per 10 gm as premium, while retailers in some remote areas were paying about Rs 1,200 per 10 gm. RBI’s proposal, which has not been notified yet, is aimed at curbing the imports of physical gold, which, along with crude oil, have been putting pressure on India’s current account deficit. For more read…

Goldcore on India’s curbs on Gold Imports:

The Reserve Bank of India issued a set of guidelines last week increasing restrictions on gold imports. According to UBS precious metals research they targeted the following areas:

1. To decrease gold imports, they aim to restrict local banks gold consignments.

2. Implement a restriction on using gold coins as collateral, limited to coins that are 50 gm.

3. Rules regarding non-bank lending against gold collateral will be set, covering regulations on ‘loan-to-value ratio, branch expansion, and review of Fair Practices Code provisions with regard to auction and transparency in loan terms.’

Silver, commonly known as, the poor man’s gold, is seeing a reverse trend in India compared to the world market where a drop in silver prices has increased demand. In India, the demand for silver jewelry has fallen significantly and the investment demand has run dry even though the price has fallen to Rs 46,000 per kg. This looks to decrease the country’s silver imports by 12% to 2,200 tonne this year from 2,500 tonne last year. Gold is still the favorite for Indian consumers and today 90% of gold imports are routed through banks. This year’s Akshaya Tritiya festival in India falls on May 13th. It is the second-biggest gold buying festival after Dhanteras. The Indian Wedding season has just begun and will continue until July. India’s Central Bank, The Reserve Bank of India seeks to restrict bullion imports because of the strain it is putting on their current account deficit. India is the largest importer of gold and more than half of it is used for jewelry.

China looking forward to break all records of Gold Imports:
China looking to overtake India as the world’s largest consumer of the yellow metal imported a new record amount from Hong Kong this March. The amount was 223.52 tons which is over two times the previous record high of 114.4 tons recorded in December 2012. The China Gold Association reported that gold consumption jumped 26 per cent to 320.54 tons in the first three months from a year earlier. The World Gold Council stated that Chinese consumption totaled 776.1 tons in 20912, down from 779.8 tons the previous year. Gold imports by China from Hong Kong more than doubled to an all-time high in March as buyers underscored increased bullion demand in the world’s second-largest economy. This demand was fuelled no doubt by the record fall in the gold price on April 12th. Mainland buyers purchased 223,519 kilograms (223.52 metric tons), including scrap, compared with 97,106 kilograms in February, according to Hong Kong government data. If this buying trend continues the Chinese look set to break all previous gold consumption records. We expect The World Gold Council’s Q1 demand report to confirm the strength of Chinese demand for gold bullion.