Mumbai: Gold premiums in India, the world's second-biggest user, are poised to slump to the lowest level in 10 months as reduced curbs on imports boost supplies, according to the All India Gems & Jewellery Trade Federation.
The fees that jewellers pay banks and other importers for gold may drop to $25 an ounce to $30 an ounce over the London cash price next month, the smallest since August, said Bachhraj Bamalwa, a director at the association that represents 300,000 jewelers and bullion dealers. The premium was $50 on Tuesday.
Imports by India, which made up for about 25 per cent of global demand in 2013, are seen gaining after the central bank allowed more agencies to import the precious metal last week. Shipments are seen at 30 metric tonnes this month and may increase by 10 tonnes to 15 tonnes in June, Bamalwa said. Curbs on overseas purchases may be further relaxed by Prime Minister Narendra Modi's government, which took office this week, he said. "The new agencies allowed to import gold are in the process of completing formalities now and imports will start coming in soon," Bamalwa said by phone from Kolkata, formerly known as Calcutta. "This will increase supply in the domestic market" and reduce the premiums, he said.
The Reserve Bank of India last week allowed star and premier trading companies approved by the Directorate General of Foreign Trade to import gold under a rule that requires shippers to supply 20 per cent of bullion to jewelers for export. The RBI also eased some financing rules allowing banks to give gold metal loans to jewellers.
The government raised import taxes three times to 10 per cent last year and linked imports to re-exports in order to reduce a record current-account deficit and a slump in the rupee.
Curbs on gold imports contributed to the gap narrowing to $32.4 billion in the financial year ended March 31 from a record $87.8b a year earlier, the RBI said on May 26. The rupee reached an 11-month high of 58.3350 on May 23 and has gained 2 per cent this month against the United States dollar.
The sharp narrowing of the current-account deficit was mostly due to restrictions on gold imports, Indranil Pan, Madhavi Arora and Suvodeep Rakshit, analysts at Kotak Mahindra Bank, said in a report on May 26. Assuming a relative relaxation on gold import restrictions this year, purchases are seen rising about 30 per cent to 800 tonnes, the report said.
"There is a case for relaxation of import restrictions as the current-account deficit has come down and simultaneously we are seeing a drop in gold prices," Vicky Sajnani, associate vice-president of commodities and currencies at JM Financial Services, said by phone from Mumbai.
Finance secretary Arvind Mayaram discussed import curbs with newly appointed Finance Minister Arun Jaitley yesterday, he told reporters in New Delhi.
Futures on the Multi Commodity Exchange of India in Mumbai tumbled to the lowest level in 10 months yesterday, extending a 7.9 per cent decline last year. Gold for immediate delivery in London retreated to the lowest level in more than 15 weeks today before trading little changed at $1,265.23 an ounce.
Consumption in India will probably increase in the second half as the new government may relax import curbs and festivals spur purchases, the World Gold Council said.