High gold prices have helped the Indian government to keep gold import bill under check. In first six months of 2016, India's gold import bill had been estimated at $9.4-9.6 billion with imports estimated at around 210 tonnes. Compared to the first half of last year, import bill is down over 40%, while import in tonnage is down almost by half.
January was the last month which saw high gold import at 75 tonnes, post which imports have been averaging 27-30 tonnes per month. Even in the month of May, despite Akshaya Tritiya — a festival during which buying gold is considered auspicious — demand was muted.
Analysts, however, say that in the import bill, nearly 15-20 tonnes per month is for exports and only a small portion is imported by gold refineries. March was the worst month for gold jewellery business due to the jewelers strike, following the imposition of excise duty.
However, during the period, especially from March onwards, every month 15-20 tonnes of gold is arriving in the country via the unofficial route. Much lower demand, due to rising prices and high unofficial import flows have resulted in discount on gold in the spot market, quoting between $40-50 per ounce or Rs 800-1,100 per 10 gram to the cost of imports. This is keeping banks away from importing gold.
According to GFMS TR data, imports in 2015 was the lowest in the last many years.
Gold price fell below Rs 25,000 per 10 gram by December end and now in Mumbai it is quoting at Rs 31,260 per 10 gram. Most traders and analysts believe last year's draught and sharp increase in price have kept buyers away.
In the cash market last week, on Friday, gold was available at $100 per ounce discount in the Ahmedabad market, which was never seen before. A spokesperson for newly-created The Bullion Federation said: "There is an urgent need to identify those dealing in gold with cash. All gold trades have to be through banking channels."
However, high discount in spot and even higher discount in cash market has created a situation where four prices for gold are quoted. Today afternoon when gold price was around $1360, cost of import for banks including duty was Rs 32,240 per 10 gram. On MCX, August futures was quoting at Rs 31,630 per 10 gram, which means around $30 per ounce discount to cost of import. In the Ahmedabad market, gold, if purchased through banking channel and with accounted money was quoted at Rs 31,050 (VAT not included) which is at a further discount to MCX price and around $52 discount to cost of imports. However, smuggled gold or in the cash market in Ahmedabad, gold was available at Rs 30,500 per 10 gram, widening the discount further to cost of official imports.
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