Demand for gold to increase
India’s gold demand is likely to pick up in the second half of the year as curbs on bullion imports are expected to be eased by the country’s new government, top officials at the World Gold Council (WGC) said on Tuesday.
Struggling with a ballooning trade deficit, India in 2013 imposed a record high duty of 10 percent on overseas purchases of gold, the second-biggest expense in its import bill, and introduced a rule tying import quantities to export levels.
Any roll back in these restrictions and stronger demand from India, the world’s No.2 buyer of gold after China, could support a recovery in global prices of the precious metal that slumped 28 percent last year – the first drop in 13 years.
“The change (in gold policy) is inevitable because Modi seems to be pro-gold,” said Albert Cheng, WGC’s head of the far east region, referring to Narendra Modi who romped to a landslide victory in the recently concluded general elections in India. “It’s just a matter of when he is going to do it.”
Modi, who leads the pro-business Bharatiya Janata Party, has said any action on gold should take into account the interests of the public and traders, not just economics and policy.
Gold demand in India fell by a fourth to 190.3 tonnes in the quarter to March due to the curbs and have sent local premiums to record highs, WGC said in its quarterly report on Tuesday.
Analysts have, however, said that while Modi’s victory is a positive for gold, he might not make changes immediately.
India’s trade deficit has been falling in recent months, largely due to the drop in gold imports and any step to ease the rules would be taken cautiously, some have said.
Somasundaram PR, WGC’s head of Indian operations, reiterated the industry body’s forecast for India’s full-year gold demand, shrugging off the sharp drop in demand in the first quarter.
“We continue to hold 900-1,000 tonnes (of annual demand in India) as it is expected to pick up in the second half,” Somasundaram said.
“In the second half and particularly the fourth quarter, if there is policy relaxation, then it could be a robust quarter.”
WGC also maintained its forecast for top buyer China, whose demand is expected to be 1,000-1,100 tonnes for the year.
Given that gold imports are a burden on India’s trade balance, Somasundaram said the government should look at long-term and sustainable solutions for overseas purchases of the precious metal after relaxation of current curbs.
“The policy changes won’t be the be all and end all of policy making. Gold will have to be brought more formally in the financial sector if it has to play a role in the longer term, otherwise it will be considered as an asset that households buy and which costs us precious foreign currency,” Somasundaram said.
Gold is considered auspicious as a gift or offering at religious festivals and weddings in India. It is also a popular form of investment.