Wednesday, February 24, 2016
Efforts by the Indian government to reduce the country’s reliance on imports of gold appear to be having some knock-on effects.
Market analysts say that the country – the world’s second biggest buyer of the precious metal after China – will record a two-year import low of around 25 tonnes in February. The figure will be a welcome relief to the Indian government, which had to pay $36 billion in gold import costs last year.
Bachhraj Bamalwa, director at All India Gems and Jewellery Trade Federation, told Reuters: “Banks and trading agencies have scaled down imports. They are being forced to offer heavy discounts (to global prices) to clear inventory.
“Consumers are not sure about price trends. They are waiting for prices to stabilise before making purchases.”
The weaker demand from India could impact the current strong gold prices being seen on the world markets. The price of bullion is currently 15 per cent higher than it was at the start of the year and is enjoying its best sustained rally since August 2011.
However, Indian gold dealers are not benefiting from the high prices seen elsewhere and have been offering discounts in an effort to attract buyers. Analysts say that jewellers and retail buyers are biding their time to see whether the Indian government reduces the import duty on gold in the forthcoming budget at the end of the month. A similar drop in domestic gold prices was experienced before the country’s last budget, when the government did not meet the market’s expectation of a cut in duty.
India’s import duty for gold was set at 10 per cent in 2013 as it tried to reduce the amount of gold that was brought into the country. However, it had the effect of boosting smuggling and Reuters reported that around 175 tonnes of bullion were smuggled into India in 2014.