11-Sep-2013
India's imports of gold in August fell to less than a 10th of what it bought a year earlier, as higher import tax and a weaker rupee currency drove up local prices to a near record and tighter rules made imports tougher.
But demand is expected to pick up over the next two months because of the festival season, industry executives said.
India imported three metric tons of gold in the past month, compared with 35 tons a year earlier. The drop was even more dramatic compared with April, when imports totaled 142 tons as buyers rushed to take advantage of a fall in gold prices to a two-year low.
India imported three tons of gold in August, compared with 35 tons a year earlier and 142 tons in April, when prices dropped to a two-year low.
India imports nearly all the gold it consumes. The outflow of dollars spent on gold was one of the main reasons for India's wide trade and current-account deficits, one of the biggest worries for investors to dump Indian assets, pushing the rupee to successive new lows against the dollar in recent weeks. The rupee is down about 16% against the dollar since early May.
The government is likely to find the latest data encouraging. The value of gold imports fell to $650 million in August from $2.20 billion in July, helping India's trade deficit to narrow to $10.9 billion from $12.27 billion, government data showed Tuesday.
Local authorities have been trying to curb demand for the metal, with Finance Minister Palaniappan Chidambaram publicly urging people to curb their gold purchases.
India raised the import tax on gold to 10% from 8% in August—the fifth increase since January 2012. Besides, the Reserve Bank of India in July asked banks and dealers who import the metal to ensure that 20% of imports were re-exported.
Banks and state-run trading agencies had halted gold imports because of a lack of clarity over the changes in rules, but are now expected to resume purchases as detailed guidelines have been issued recently.
"We do believe that demand will be high during the festival season," said P.R. Somasunderam, managing director of the World Gold Council's India office.
However, a repeat of the rush in demand seen in mid-April is unlikely, he said, as prices are higher compared with the April levels.
"The festival season is ahead and there should be good demand," said Harmesh Arora, a spokesman for the Bombay Bullion Association, one of the largest gold-industry associations in India. "I hope the price stabilizes."
There were some signs of that Tuesday with the price of gold in the local market falling to 31,000 rupees per 10 grams from 34,000 rupees on Aug. 28, when the rupee hit a record low of 68.80 to the dollar. The rupee has since risen to end local spot trading at 63.84 Tuesday.
International gold prices also softened and were 0.8% lower Tuesday at $1,375.10 a troy ounce.
According to Mr. Arora, even if the prices were high, Indian consumers would buy some quantities of gold as they consider it auspicious during the festivals.
"You cannot stop the minimum demand," he said, adding that imports through the year were likely to be around 900 tons.
Imports totaled 859.7 tons in 2012.
Demand from rural India is expected to be strong this year. This is because India is expecting a bumper harvest of summer-sown crops such as rice, oilseeds, sugar and cotton that should boost rural income and spending on gold—the popular mode of savings for farmers.
Meanwhile, the local market has seen a turnabout as lots of people have been selling stashes gold jewelry since late-August with the drop in rupee's value pushing up Indian gold prices
Source:- online.wsj.com
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