Gold premiums to stay low in 2014 due to weak demand.

Indian gold premiums will average USD 3-USD 4 an ounce over London prices this year, roughly half what they were last year, because of continuing restrictions on imports that will soften demand, the head of the country's biggest gold refiner said on Thursday.

Struggling with a high trade deficit, India raised its gold import duty to a record 10 percent last year and made it mandatory to export a fifth of all bullion imports. Gold is India's second-biggest expense on the import bill after oil.

The restrictions crimped supply, pushing premiums at one point to about usd 160 an ounce. Premiums - the difference between local prices and the global benchmark - are a good measure of supply and demand in the market.

The drop in demand means MMTC-PAMP's premiums on gold will probably fall to an average of USD 3-USD 4 an ounce over London prices this year compared with last year's average of USD 7-USD 10, Rajesh Khosla, managing director of the refiner, told Reuters.

"Quantitative restriction is here to stay," Khosla said. "As a country we do not have the foreign exchange to spend on an unlimited free import of gold. And that is the reality."

MMTC-PAMP, a joint venture of Swiss refiner PAMP and India's MMTC Ltd, had to close its refinery for three months after the government imposed the restrictions in August last year.

The government later allowed refiners to hold 15 percent of their licensed quantity of 150 kg as bulk allocation.

The World Gold Council said this month that the import restrictions meant India's gold demand in 2014 would be 850-950 tonnes, below the record 974.8 tonnes last year.

Source : moneycontrol.com