More gold curbs in the offing in India

India’s Finance Minister P Chidambaram said Monday the government would continue with its restrictions on gold imports, following the surge in inward shipments of the metal in July. Though imports were low in June, in July the tide appears to have turned again, Chidambaram told journalists, late on July 29. After moderating in the previous month, the Finance Minister said the high imports in July would force the hand of the government.
Gold imports were 141 tons in April, and rose to 162 tons in May. Stating that 302 tons of gold was imported in two months, the minister said, if the figure was multiplied six times, then 1,800 tons of gold would be imported this fiscal. Justifying the steps taken by the Indian government and the Reserve Bank of India to curb gold imports, he asked, “…where exactly is the money to import 1,800 tons?”
Admitting that it was difficult to persuade people not to buy gold, Chidambaram added that given the propensity to buy the precious metal at every given dip in price, Indians would not keep away from the metal. Incidentally, India’s obsession with gold appeared to have petered out in June under the onslaught of measures by the finance ministry and the Reserve Bank of India.
Gold imports in June slumped over 80% to a mere 28 tons against 162 tons in May. “Given the severe steps to discourage gold imports, gold imports fell sharply in June. Typically, June and July are slack months when the demand for gold is rather subdued given the lull in the marriage season. Now that the market is demanding gold, the government will start curbing it again,” said Prithviraj Kothari, managing director, Ridhi Sidhi Bullion and former president of the Bombay Bullion Association.
He added that gold premiums have almost tripled in India, with jewellers rushing to secure supplies. Though any fresh move by the RBI could further squeeze imports, bringing on tightness in gold availability, a certain section of the market thinks the move could well back-fire.
Brokerage house Kotak Securities has said in a report that the Indian government’s recent moves to curb gold initiated last week, are likely to be negative for the country’s current account deficit, as they reduce funding challenges for domestic jewellers. This makes the arithmetic a bit tricky and actual imports would depend on checks and balances on reporting of gold exports, the agency has said.
Stating that the efficacy of the new measures in restricting gold imports to reasonable limits could be blunted if the jewellery export business suddenly bunched up demand, the report adds that in such conditions, the available limits for banks to import gold would naturally go up, leading to more than necessary amounts being imported.
Gnanasekar Thiagarajan, Director, Commtrendz Research said with scrap sales increasing, and gold jewellers introducing new schemes to lure people to sell their gold holdings at a small premium, several alternative channels have become quite active. Kaushal Jani, of broking firm Dani Investment Services said that though gold supply would reduce considerably, Indian consumers would find other ways to satiate their need. “Demand will continue to be steady,” he said, adding, “the more curbs the RBI places, the move could well back-fire given the pent up demand in the country.’’

Source: Bullion Bulletin

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