India's gold imports could pick up in the second half of 2012 if record prices ease but annual volumes will still fall about 30 percent after a tax hike, which could crimp demand until 2014, the head of Mumbai's gold trade association said.
Imports could hit 300 tonnes in the second half, up from 250 tonnes in January to June, if local prices steady around Rs 30,000 for 10 grams, said Prithviraj Kothari, president of the Bombay Bullion Association, keeping the annual fall to just 30 percent.
Volumes are likely to stay flat in 2013, he added, as the impact of a doubled import duty continues and there are fewer festival days for traditional gift-giving.
"I think 2012 and 2013 should be dull," said Kothari, whose association groups about 400 jewellers and bullion dealers.
India doubled its import duty on gold to 4 percent in March in a bid to reduce the value of imports and ease its current account deficit, helping to slash first-half imports by 58.7 percent to 250 tonnes.
"The only change has been the sentiment because prices are at an all-time high and the rupee has depreciated," said Kothari, who wore a gold bangle and a chunky diamond ring.
A fall in the rupee currency to record lows has driven domestic gold prices to peaks above 30,000 rupees for 10 grams, but international dollar-denominated gold prices have sunk, keeping Indian investors wary.
"I am still bearish (on gold) ... U.S. elections are there so the dollar would be strong," said Kothari, speaking at his office, located in a building called "Bullion House".
Kothari expects gold prices to fall to test support as low as $1,400 an ounce this year, down as much as 11 percent from current levels, on a flight to safety in the dollar.
India's 2012 imports will also depend on the monsoon rains, which bring better yields, production and profits to farmers, who often invest in gold due to a lack of banking facilities. About 60 percent of gold demand comes from rural areas.
High domestic prices are spurring recycling of gold, with Indians remaking their old jewellery, and volumes could rise to 300 to 350 tonnes this year, up 169 percent on a year ago, Kothari said.
The government wants to cut gold imports to $38 billion in the fiscal year to March 2013, down 38 percent on the year, to help rein in a bulging current account deficit. Imports during April and May were down $6.2 billion.
Kothari expects 2013 import volumes to be flat on this year but 2014 should see a pick up to record levels of 900 to 1,000 tonnes as spending in an election year puts more money in the hands of consumers.
"2014 would be good for the Indian economy, Indian purchases (of gold)," he said.
In the last general election in 2009, candidates spent 100 billion rupees -- about $1.45 per person but more than double outlays in the 2004 election, according to the non-profit Centre for Media Studies (CMS).
Shining silver
Kothari is more bullish on cheaper silver, driven by heavy usage of the white metal in the solar industry, and expects prices to almost double to $50 an ounce in a two-year period.
"I am more bullish on silver compared to gold ... If I have money, than I'll buy silver instead of buying gold as it is cheaper," he said.
"There will be maximum use of silver in the solar industry. That will be the main reason (for the price rise)," he added.
Silver is also used in industries such as photography and mobile phones, apart from jewellery consumption. The price of silver has dropped 22 percent since the start of March, versus a fall of 6.9 percent in the price of gold.
"Women have made more returns than men by investing in jewellery ... men have lost all their money in shares, and everywhere else," said Kothari.
