High Prices Trip Up Gold & Silver Imports In India.

MUMBAI  -

The allure of the yellow metal seems to be slipping in India. Historic high prices for both gold and silver have ensured that bullion imports have fallen in the traditional market of India, ahead of the key festival buying season in mid September and October, raising agitation and anxiety amongst traders.

Imports of gold and silver into India jumped 130% in value terms to $26.3 billion between April to August 2011, (5 months), as compared to the same period last year. However, this figure is actually way lower than the 222% increase in bullion imports between the months of April and May, 2011.

In these 2 months, growth in gold and silver imports went up to $8.96 billion. Moreover, imports of gold and silver during April to June 2011, (3 months) was 200% at $ 17.7 billion, showing a slight decline in June.

For five months though, from April to August, bullion imports have actually slipped, though it is 130% higher as compared to the same five months of last year.

"Normally, this is the time gold traders and buyers in India would be importing huge quantities of gold and silver before the onset of the marriage season and the ongoing festival season. Gold prices have hit historic highs recently and the low imports have raised alarm bells with the trade,'' said Sridarbhai Sonawala, bullion retailer.

On Friday, India's commerce secretary Rahul Khullar, told mediapersons that exports from India jumped 44.2% at $24.3 billion in August despite uncertainties in the US and Eurozone.

The minister said during the period April-August 2011, Indian exports reached a level of $134.5 billion, signalling a growth of 54.2%. Imports were $189.4 billion registering a growth of 40.4%, leading to a trade deficit of $54.9 billion, during the same period.

In the case of gold and silver, imports jumped 130%, he said. But when one compares this to the imports in May, imports have slipped. Gold prices have gained more than 25% so far in the year.

"For the two months of April and May, there was a huge surge in gold and silver imports at 222%. This could be due to the fact that people sought bullion as a safe asset to possess, but the constant increase in price over the next three months, appears to have dented demand and imports have slid,'' said Sonawala.

For the month of July, government data shows imports of gold and silver stood at $3.7 billion. India is the world's largest consumer of the yellow metal, and is doing everything possible to ensure that its consuming class buys more of the precious metal.

"We will definitely have lower sales this festival season,'' said Prithviraj Kothari, president of the Bombay Bullion Association. ``If prices continue to remain firm, demand will be lower. But if prices fall, demand is bound to rise,'' he said.

Way too high

Speculators have driven the price of gold to record levels and now the jewellery sector and trade will have to pay for this, dealers at a bullion conference had earlier pointed out. The 8th India International Gold Conference, organised by the Bombay Bullion Association end-August, had traders and analysts speaking about the rising power of bullion.

Speakers mentioned that the last year had clearly demonstrated the power of gold, the only stable and globally accepted physical currency, in uncertain times. Gold has not only held on to its enduring value, but has also come on top as the most preferred real currency during this period, speakers said.

While the discussions on gold in the scenic state of Kerala in South India, were dominated by investment demand themes, jewellery was still touted as the key demand driver. However, speakers also noted that given the high price for gold, the ramifications of demand compression would need to be dealt with soon. The recent import statistics indicate that this could already be happening in India.

The conference was aimed at looking at universal bullion throw supplies, bullion-based investment products, a standpoint on the bullion marketplace and industrial uses of silver, together with minute discussion of the bullion market. Speakers also alluded to the shifting feature in the gold holding pattern, with the share of private holding steadily increasing.

The Bombay Bullion Association is also planning to launch an exchange traded fund (ETF) in gold. ``We have to register as a company to meet the requirements of the Securities and Exchange Board of India and we expect to bag it in six months,'' said Association president Prithviraj Kothari.

According to the rules of India's capital market regulator, the trade body will have to register as a mutual fund before it can launch ETFs. The Association has over 450 members in the world's largest bullion spot market of Mumbai.

Source : mineweb.com