India central bank hints easing of gold imports close

Long the top importer of gold, India fell behind China in 2013.

The decline in gold consumption in India came after bullion import duties were pushed up tenfold – from 1% at the start of 2012 to 10% – and other rules such as strictly cash only for imports, mandatory re-export of 20% of imports and transaction taxes stymied India's gold industry.

The shortage of physical gold meant premiums over the London fix demanded by Indian gold traders from jewelers shot up as high as $180 an ounce during peak festival and wedding season last year and remain high today at $60 an ounce.

That's up from $20 an ounce in the middle of March and indicates that demand is creeping back up, argues ANZ in a new research note.

Lifting the restrictions could unleash the pent up demand in India which during good years take in more than a 1,000 tonnes of world supply.

India is gearing up for a general election and a number of politicians have promised to lift the restrictions on the metal so central to the Indian culture.

In March authorities took modest steps by allowing five private banks to import gold and earlier this week the country's finance minister commented that further lifting of restrictions are on the cards in consultation with the Reserve Bank of India.

Indian Express quotes RBI Governor Raghuram Rajan on Wednesday as saying he favoured the gradual easing of curbs on gold imports:

“I think what we have to do is slowly and steadily take actions to remove some of these curbs (on gold imports),” Rajan told analysts at the post-policy call with researchers and analysts today.

He, however, said the timing on relaxation on gold imports needs to be discussed with the government. “It would be useful for some of the big uncertainties facing us to be behind us rather than still in front of us before major actions are taken up in this regard, but I don’t rule it out,” he said.

In contrast to India traders on the Shanghai Gold Exchange are offering gold at a discount to the quoted London spot price.

Driven in part by a weakening renminbi discounts on gold in China widened to as much as $9 an ounce below when the price were headed towards $1,400 in March.

That gap has now shrunk to $2–$3 an ounce as the lower gold prices drives fresh demand and could strengthen further if the yuan begins to appreciate again as expected.