Commodity Online
MUMBAI: High gold prices and dropping jewellery sales are again hitting India's gold imports. Bombay Bullion Association (BBA) said on Thursday that gold imports by India may fall by 50% to stand around 15 tons for the month of May. In April, India had imported around 30 tons of gold.
Gold imports to India, the world's largest importer and consumer of the yellow metal, has been plunging thanks to volatility in gold prices and dropping sales in jewellery. In January, gold imports to India was a paltry 2 tons, where imports dipped to zero levels in February and March.
India used to import around 700 tons of gold every year, some years back. But in 2008, import of the yellow metal had declined to around 400 tons.
While religious festivals and the gold buying marriage season propelled gold imports in April, imports have dipped again in May. BBA president Suresh Hundia said that reasons for the plunging gold imports are the rally equity markets and the continuing high prices of gold in the bullion market.
India's stock markets are surging these days thanks to the victory of the Manmohan Singh government in last month's parliamentary elections.
Hundia said the rally in equity markets have also hit investment demand in gold. He said demad for gold will pick up only if prices fall to around INR14,000/10 grams. "We feel gold prices will be on those levels by June.
Currently, gold is trading around INR14,600/10 grams in the local market. A stronger rupee, which has risen by over 5% against the dollar since April 1, is likely to bring down the local price of gold, Hundia said.
So far, the impact of a stronger local currency has been marginal as gold has risen in the global market in recent weeks.
"Spot gold prices have risen to $960/oz from about $860/oz, so a correction is likely," he said. "I expect prices to drop to $912/oz to $932/oz by the end of this month. Once that happens, Indian prices will automatically fall to INR14,000/10 grams and local demand will start picking up," Hundia said.
He said he expects the rupee to strengthen further to about 46.00 to a dollar, in the coming weeks. At 0815 GMT, the rupee was trading around 47.65 to a dollar.
India imports more than 90% of the 700 tons to 800 tons of gold sold in the country annually. Hundia said gold imports in 2009 are likely to be in line with last year's imports of 396 tons.
The chance of an increase in demand looks remote as investment buying in gold has disappeared with few willing to bet on the yellow metal at prices above INR12,000/10 grams.
However, banks in India, which had imported gold in April just ahead of the Akshaya Trithya festival, have been able to sell most of their stocks, Hundia said.
Scrap gold sales are also thin at the moment and volumes are likely to pickup only when prices rise to INR15,000/10 grams, Hundia added.
