Gold import is likely to decline 20 per cent in the second half of the current calendar year, on account of rising recovery from domestic sources through scrap recycling.
The fall will provide a breather for the government. It has been trying to discourage the precious metal’s arrival, blaming the scale for widening the trade deficit.
The World Gold Council has forecast total import at 305 tonnes in the second half of this calendar year, as compared to 380 tonnes in the corresponding period of last year.
Imports in the second quarter of the year, ending June, dipped 56.4 per cent to 131 tonnes, as compared to 301 tonnes in the comparable period last year. In the first quarter, the import was 209 tonnes. Overall gold demand fell 38 per cent to 181.3 tonnes in the second quarter as compared to 294.5 tonnes in the same quarter last year.
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domestic consumption
recycled gold
other sources
Jewellery demand was also down in the second quarter at 262.9 tonnes compared to 378 tonnes in the same period last year. There is a slowdown in investing on gold bars and coins, which pulled investment demand down by 27 per cent to 120.3 tonnes from 218 tonnes during the quarter under consideration.
These declines come in the wake of the government raising import duty four times, to four per cent, between January and March this year, to discourage it. The item, says the government, has been the biggest contributor to the widening current account deficit (CAD).
“If you take out the gold import component from the overall CAD, the overall deficit still works out to at two per cent from the existing CAD at 4.2 per cent,” said Ajay Mitra, managing director (India and Middle East), World Gold Council, while announcing the demand trend for the second quarter.
Going by the current price of about $1,600 an oz, gold is set to contribute $15.35 billion (Rs 85,700 crore) in overall foreign currency outflow from India during the second half of this calendar year. In the first half, the outflow due to it was $17.5 bn (Rs 97,700 crore).
The average price of gold in dollar terms during the second quarter was $1,609 an oz, a rise of seven per cent from the corresponding quarter of the previous year.
Due to the rupee’s fall, the price spurt was noticeable, at Rs 28,000 per 10g as compared to Rs 21,670 per 10g in the corresponding quarter last year.
Overall gold demand is expected to remain this year at 688-700 tonnes, a decline of 28-33 per cent from the previous year.
“The move by the Reserve Bank of India to come out with an (alternative) instrument may not yield returns similar to gold as expected, but can surely offer better interest than existing options like fixed deposit, insurance and others. No instrument can offer consistent 29 per cent returns as gold yielded in the last few years,” Mitra added.
Meanwhile, a sudden spurt in recovery from domestic sources through scrap recycling almost trebled in the quarter ending June 30, at 30 tonnes as against a mere 11 tonnes in the corresponding quarter of last year.
Higher gold generation from domestic sources and weak sentiment due to high inflationary concerns pulled down the demand for precious metals in the second quarter by 38 per cent, to 181 tonnes from 294.5 tonnes in the same quarter last year.
Mitra believes gold demand would improve in the second half despite higher inflationary concerns, amid hope of stern measures by the new finance minister, P Chidambaram, which should improve the economic situation. The FM’s measures would help strengthen the rupee, resulting in a price fall. But, scrap recycling is likely to remain up in the second half of 2012.
China is set to surpass India’s gold import by the end of this year, said Mitra.If Israel takes on Iran as estimated, the price of gold would go up in dollar terms but face a resistance at Rs 30,000 per 10g, he added.
