Arise in gold prices has resulted in a steep decline in imports, as the demand has also fallen. In the absence of imported supply, recycled gold and the gold coming into the market due to profit booking by investors are keeping the flow of supplies.
The market price was quoted at least Rs 100 less than the cost of imported gold. These discounts made imports unviable. Imports had dwindled to just 30 per cent of the average of last four months and might further fall if prices remained high, said a trader in Mumbai’s Zaveri Bazar.
In the first four months of the calendar year, the total import of gold stood at 222 tonnes, while in May it is estimated to be at 17 tonnes, and, it may further fall this month. Bombay Bullion Association President Suresh Hundia said: “Imports have come down to hardly 250-300 kg a day in the last few days, as there is virtually no demand.” Some demand is due to marriages. But, in these cases, customers are buying only incremental gold, or purchasing new jewellery after selling old ornaments. Hundia estimates “countrywide daily supply of old jewellery is 225-250 kg a day, which includes supply of coins and bars from investors booking profits.”
The supply of recycled gold is also need-based. World Gold Council (WGC) says: “The local consumers are currently resisting recycling gold because their perception has changed — at Saturday’s spot price, they no longer think they can buy it back at a cheaper price in the future if they sell it now.” However, there are some compelling factors that may come into play and Indian consumers may come for selling old ornaments. According to WGC: “The near double-digit inflation and higher gold prices, with related volatility, could prove to be a dampener. Indian consumers, stimulated by high prices, may take the opportunity to recycle old gold or dishoard it for cash. They will likely be encouraged to exchange old jewellery for new pieces.”
Meanwhile, gold prices in the local market surged on Saturday after an increase in prices internationally. On high gold prices, Bullion Analyst Bhargav Vaidya said: “Investors should start booking profit. They can even book 50 per cent profit.” WGC analysis suggests that some more supply of recycled gold may come in.