 "Gold import dips substantially in Feb; concern on dore inflow")
A steep discount in the open market has discouraged importers of gold and in February’s first half only 15 tonnes are estimated to have been brought in.
The market discount till Monday was $32.5 an ounce or around Rs 700 per 10g to the cost of import. Discounts were due to selling by traders from inventory of what was imported in December-January, when prices were lower.
Despite January being perceived as a dull month for gold, import jumped significantly in value terms, by 85.2 per cent to $2.9 billion (nearly Rs 20,000 crore), up from $1.6 bn a year before. However, from December imports, it is much lower. This is because traders had inventory and the first half of January was inauspicious for this activity in the Hindu calendar.
Industry experts are estimating import in first half to be around 15 tonnes only. They say prices in the international market rule above $1,200 per ounce. In comparison, the prices at home are lower by around $32.5 per ounce, or Rs 700 per 10 grams, which makes import unviable, as banks will not realise costs due to the prevailing discounts in the domestic market. Add to that, the prospect of a further drop in prices if import duty is cut in the Budget.
The bullion industry is more concerned about rising import in the form of dore (partially refined gold), especially by some suppliers to refineries where money laundering and mis-declaration had allegedly taken place in the recent past. While these cases are under investigation, some experts say the time has come to insist for KYC (Know Your Counterparty or Know Your Third Party).
This is because wherever dore gold refineries are importing gold through suppliers and do not source directly, there are issues of conflict gold or gold dore produced illegally or gold extracted from mines owned by anti-nationals.
Sudheesh Nambiath, lead analyst at GFMS Thomson Reuters, said: "The Conflict Minerals issue is resulting in increased emphasis on KYC becoming increasingly widespread and all elements of the gold supply chain are likely to find themselves under intensifying scrutiny. This is an issue that will command considerable attention for the foreseeable future.”
Earlier gold imported by Indians from Ghana was under the scanner of the Ghana government, which put restrictions of gold exports. The matter of dore import also assumes significance because dore forms 25 per cent of total gold imports and over 30 dore refineries have been set up in the country. Organisation for Economic Cooperation and Development (OECD) had issued due diligence guidelines for dore imports. However hardly two refineries are said to be complying with them.
Nambiath said, "Refiners might be handling gold that originated from regions considered as 'conflict gold' or been sourced from mines run by military regimes banned by the United Nations Security Council. Moreover, it is quite likely that trading in such gold is without the knowledge of the Indian refiner. The cost of this ignorance or taking a simplistic approach to this issue is a very high reputation risk for the bank, refiner and the jewellery industry as a whole."
The market discount till Monday was $32.5 an ounce or around Rs 700 per 10g to the cost of import. Discounts were due to selling by traders from inventory of what was imported in December-January, when prices were lower.
Despite January being perceived as a dull month for gold, import jumped significantly in value terms, by 85.2 per cent to $2.9 billion (nearly Rs 20,000 crore), up from $1.6 bn a year before. However, from December imports, it is much lower. This is because traders had inventory and the first half of January was inauspicious for this activity in the Hindu calendar.
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The market is expecting a two per cent import duty cut in the coming Union Budget and partly as a result, inflow in February has seen a sharp fall so far.
Industry experts are estimating import in first half to be around 15 tonnes only. They say prices in the international market rule above $1,200 per ounce. In comparison, the prices at home are lower by around $32.5 per ounce, or Rs 700 per 10 grams, which makes import unviable, as banks will not realise costs due to the prevailing discounts in the domestic market. Add to that, the prospect of a further drop in prices if import duty is cut in the Budget.
The bullion industry is more concerned about rising import in the form of dore (partially refined gold), especially by some suppliers to refineries where money laundering and mis-declaration had allegedly taken place in the recent past. While these cases are under investigation, some experts say the time has come to insist for KYC (Know Your Counterparty or Know Your Third Party).
This is because wherever dore gold refineries are importing gold through suppliers and do not source directly, there are issues of conflict gold or gold dore produced illegally or gold extracted from mines owned by anti-nationals.
Sudheesh Nambiath, lead analyst at GFMS Thomson Reuters, said: "The Conflict Minerals issue is resulting in increased emphasis on KYC becoming increasingly widespread and all elements of the gold supply chain are likely to find themselves under intensifying scrutiny. This is an issue that will command considerable attention for the foreseeable future.”
Earlier gold imported by Indians from Ghana was under the scanner of the Ghana government, which put restrictions of gold exports. The matter of dore import also assumes significance because dore forms 25 per cent of total gold imports and over 30 dore refineries have been set up in the country. Organisation for Economic Cooperation and Development (OECD) had issued due diligence guidelines for dore imports. However hardly two refineries are said to be complying with them.
Nambiath said, "Refiners might be handling gold that originated from regions considered as 'conflict gold' or been sourced from mines run by military regimes banned by the United Nations Security Council. Moreover, it is quite likely that trading in such gold is without the knowledge of the Indian refiner. The cost of this ignorance or taking a simplistic approach to this issue is a very high reputation risk for the bank, refiner and the jewellery industry as a whole."