Gold demand in India robust

gold demandGold demand in India is likely to be robust in 2014 and shall encourage an increase in smuggling if curbs on bullion imports remain, the World Gold Council (WGC) said.

Indian gold consumption is expected to be 900-1,000 tonnes in 2014 for jewellery and investment purchases, according to the WGC. That is slightly behind top gold buyer China, whose demand is expected to be 1,000-1,100 tonnes.

Indian gold consumption is expected to be 900-1,000 tonnes in 2014 for jewellery and investment purchases, according to the WGC. That is slightly behind top gold buyer China, whose demand is expected to be 1,000-1,100 tonnes.

Bullion demand in India rose 13 per cent last year to 974.8 tonnes, according to the WGC’s quarterly report issued, in a sign that consumer appetite has been largely unaffected by government restrictions on gold imports.

Struggling with a high trade deficit and a plunging rupee, India was forced to impose curbs on gold, which is the second-biggest expense in its import bill. A record high import duty of 10 per cent and a rule tying import quantities to export levels have crimped supply in what was until a year ago the world’s biggest bullion consumer, prompting a sharp jump in smuggling.

“Despite all the curbs, demand has come in at 975 tonnes. The question obviously is where the supplies came from,” said Somasundaram PR, WGC’s managing director for India. “We have seen anecdotal evidence of smuggling. Our estimate is 150-200 tonnes, more towards the upper end.”

Smuggling could have been even higher as Indian gold imports have sagged in recent months to 20-30 tonnes a month, compared with a record 162 tonnes in May. Scrap gold is also being used to meet demand.

India’s official gold imports in the first 11 months of 2013 totalled about 655 tonnes.

“If supply restrictions continue, then we will see a much higher figure for smuggling,” Somasundaram said, declining to provide an estimate.

Reducing the import duty alone will not be enough to ease supply constraints, the WGC executive said. An easing of the central bank’s 80/20 rule, which requires a fifth of all imports to be re-exported, will have more of an impact, he added.

Gold imports in India are expected to fall 13 per cent to 750 tonnes in 2013 against 864 tonnes achieved in 2012, according to the World Gold Council. The demand in the first three quarters of the calendar year of 2013 was 700 tonnes.

Despite the fall in demand and Government curbs, the council expects gold demand to touch 900-1,000 tonnes this year, as the Government eases curbs and expects better economic growth. “I have talked to number of key policy makers and indications are that the curbs will be reduced, partly because the economy is recovering and therefore the current account deficit is reducing,” said Shishmanian.

He added that there is recognition that curbs on gold do not respond to the current account fiscal challenges. These have to do with much broader macro-economic issues and therefore curbs are an unsustainable short-term measure.

 




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