Precious metals get more so

Duty rise fear spreads from Chidambaram's assurance on CAD; merchants rush to book, with bullion dealers' sales up 25%

Precious metals shot up sharply on Monday to trade at the highest level so far this month, after traders and consumers rushed to book the yellow metal, amid rumour of a further two per cent increase in import duty.

Gold at Zaveri Bazaar closed with a gain of 2.5 per cent or Rs 710 to Rs 29,250 per 10g. Silver ended at Rs 45,115 a kg, a rise of Rs 1,825 or 4.2 per cent from the previous close of Rs 43,290 a kg.

Bullion obtained support from both sides. While the rupee’s 0.65 per cent decline against the dollar made it costlier, the spurt in global markets in the precious metals basket also helped the upward march. In London, gold for immediate delivery jumped $15.50 to $1,330 an oz, while silver went up $0.55 to $21.10 an oz.

“This is a complete reversal in the global trend due to short covering by traders, set to continue for the near term. Favourable Chinese data pulled the dollar marginally down against major global currencies, thereby supporting bullion’s uprise. The trend is, however, likely to continue for the short term,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

The trend percolated to the futures market, too. Gold for delivery in October shot up 2.7 per cent to Rs 28,645 per 10g, the commodity for December delivery went up 2.8 per cent to Rs 28,542 per 10g on the Multi Commodity Exchange of India.

Gold import hit $2.9 billion in July as against $2.45 bn in June, sparking fear of another round of duty rise, since Finance Minister P Chidambaram also promised to bring down the current account deficit (CAD) to 3.5 per cent of gross domestic product from the 4.5 per cent of a few weeks earlier.

The minister, according to trade sources, is inclined to raise the import duty on gold and silver by two per cent and four per cent, respectively. This would raise the duty on gold to 10 per cent and to silver at 11 per cent. With the proposed step, the import duty on gold would have risen a little over 10 times in 20 months, from less than one per cent in January 2012. Silver would have seen a 11-time increase.

Analysts forecast the gold price to hit $1,385 an oz in dollar terms, translating to Rs 29,600-29,700 in Indian markets. “Silver has more upside potential than gold, with the ratio between the two precious metals supporting the move,” said Thiagarajan.

Bullion dealers witnessed a sharp 25-30 per cent rise in sales on Monday, which they attributed to a boost in consumer offtake to build stock ahead of the festival season.

“Also, there is a buzz in the market of another two per cent import duty hike. Merchants, probably, book bullion in high quantity ahead of any such decisions by the government,” said Lalit Jagawat, proprietor of Nakoda Bullion, a Zaveri Bazaar–based bullion dealer.

After falling in a bearish trap since April, resulting in a price decline of 21 per cent so far this year, the global trend for gold has suddenly turned favourable. Some buying has been witnessed, as evident from the sudden U-turn in inflows into exchange-traded funds. Holdings in the benchmark SPDR Gold Trust grew by 0.2 per cent to 911.13 tonnes on Friday, the first increase since June 10. The fund has seen a little more than 14 million ounces in outflow this year, about $19 bn at current prices.

Data released by the Chinese authorities on Thursday showed both exports and imports from the country grew at a faster than expected pace in July, a sign that the world’s second-largest economy was steadying after a first-half slowdown.