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Lifting of 80:20 rule floods market with gold, prices down |
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KOLKATA: Union Finance Minister Arun Jaitley's recent move to withdraw import curbs on gold seems to have paid off. Importers who had stocked up gold in November in anticipation that the government would introduce stricter curbs are now stuck with huge volumes of the yellow metal, and are forced to sell at a discount as there's no demand for gold in the market.
As a result, import of gold has come down in December, bringing relief to the Narendra Modi government which was worried over the widening current account deficit (CAD) in the second quarter of FY15. In the July-September period, CAD had widened to $10.1 billion, or 2.1% of the GDP, from $7.9 billion, or 1.7% of GDP, in the first quarter.
"According to our estimates, star and premier trading houses had imported around 150 tonne of gold in November, thinking that once the government had imposed the import restrictions, they would sell gold at a higher price and book profits. But that didn't happen and now there's a glut. So, they are now selling gold at a discount of Rs 50-200 per 10 gm because there's hardly any demand in the market," Bachhraj Bamalwa, director, All India Gem & Jewellery Trade Federation, told ET. Jaitley had, on November 28, surprised the market by removing the 80:20 import scheme, which mandated that 20% of all imported gold had to be mandatorily exported before any new shipments could be brought in. "It was over trade that the authorities may impose restrictions on gold import after data showed that this had more than quadrupled in October 2014 to 106.3 tonne (26 tonne in October 2013)," said industry officials.
Rajesh Mehta, chairman, Rajesh Exports, a firm that imports gold, said that availability of gold is better in the market as a lot of it was imported in November since there was an expectation that the government will come up with stricter rules. "The demand for gold has slackened which is why importers have to sell gold at a discounted price. However, this is a temporary phenomenon and things will improve from January."
Jewellers now see an opportunity to buy gold as there's no premium on the metal right now. "This is a good opportunity for jewellers to restock gold for the upcoming season. But unfortunately, there is no demand in the market right now and even the wedding season demand has come to an end. We expect some demand from the middle of next month when marriages resume again," Bamalwa added.
Unlike previous years, jewellery will drive the demand for gold this year. In fact, total jewellery demand in India for Q3 this year was up 60% to 182.9 tonne compared with 114.5 tonne in the same quarter previous year.
Investment demand, on the other hand, was down 10% to 42.2 tonne. Gold prices fell Rs 50 to Rs 27,250 per ten gram in Delhi on Thursday owing to slackened demand.
Source : economictimes.indiatimes.com
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