With transnational arbitrage opportunity coming to an end due to recent price declines, India may resume gold imports again after a two- month hiatus.
Until last week, gold was selling at a discount in the domestic market of Rs 250-300 per 10 gm, thereby, prompting traders to halt imports and sell their existing holding in the international market. As a consequence, India’s gold imports slumped to 20 tonnes in the first quarter of 2009 as compared to 141.2 tonnes in the corresponding quarter last year.
During the period, however, India emerged as a net exporter of the yellow metal for the first time and shipped about 10 tonnes of raw gold mainly to Dubai which was a traditional supplier until recently. Although, the discount in Indian market was not uniform throughout the period, local exporters earned a profit of approximately Rs 25 crore.
According to an analyst, Indian banks currently hold about 5-6 tonnes of gold which is equivalent to hardly two-days of domestic consumption as per a conservative estimate based on last year’s imports.
Additionally, scrap recovery has gradually started cooling down with about 50 per cent used gold arrivals have declined from the daily average level of 500 kgs earlier. Therefore, analysts believe that pipeline inventory may exhaust very soon thereby, forcing India to look for imports of raw gold to meet seasonal demand.
Ajay Mitra, MD - India sub-continent of the World Gold Council (WGC) has indicated that the agency has extensive plans to bring customers to the jewellers’ shop through promotion of innovative jewellery designs.
Gold prices were quoted at $877 an ounce in early afternoon trade in London, translating at Rs 14,170 per 10 gram in India. Considering the dollar at 50.5 against Indian currency, the price parity is almost levelled. Hence, arbitrageurs do not find any benefit in exports of yellow metal, said a trader.
According to Suresh Hundia, president of the Bombay Bullion Association (BBA), gold imports slumped to “nil” in February and March but could resume now. Last year, India imported 740 tonnes of gold.
“The demand of gold will revive in the days to come if the price retains this level at least for one week,” said a leading Mumbai-based jeweller.
Standard gold price in Mumbai spot market fell 2.3 per cent on Monday to close at Rs 14,250 per 10 gram despite the metal remained moved rangebound at $877 in London. The precious metal fell 6 per cent in the domestic and 4 per cent in the international market.
Gold prices in Mumbai market hit an all-time high on February 20 at Rs 16,040 per 10 gm, up 34 per cent on the year.
On the Multi-Commodity Exchange (MCX), gold contract for delivery in June declined 2.16 per cent to trade at Rs 14163 per 10 gm.
