Column: Funds buy back into copper’s super-cycle credentials
The impact of fund flows on the current price dynamics may be a harbinger of things to come.
The Reserve Bank of India (RBI) will maintain its hard line against gold.
The RBI announced on Wednesday that it will not reverse its policies on gold imports, the Times of India reports. Some were expecting at least a mild easing of import restrictions.
“At this point, it will be premature to withdraw these restrictions for a variety of reasons,” RBI governor Raghuram Rajan said, as reported by the Times. “Once we feel more comfortable with the current account deficit, once we have a sense that tapering, at least the threat of it, is behind us, we will certainly consider unwinding these distortionary actions.”
The RBI sees India’s massive gold imports as a major contributor to the country’s current account deficit (CAD) – the broadest measure of trade which indicates that India is importing more than it’s exporting.
India’s CAD reached record highs in the past fiscal year, dragging down the value of the rupee and prompting the Bank to impose series of gold import restrictions and to raise duties on gold to 10%.
But the attack on gold now appears to have reached its desired effect: India’s CAD is shrinking. According to a Bloomberg report from earlier this month, the deficit has reached its lowest point since 2010, going from $21.8 billion in the second quarter of 2013 to $5.2 billion in the third.
Meanwhile, although India’s official bullion import levels have dropped, high levels of smuggling have placed a premium on the price of gold.
Going forward, the RBI says it is in favour of removing the restrictions – especially since it would reduce incentives for smuggling.
“I would be much happier if we had the kind of CAD we have without significant curbs on anything, including gold,” Rajan said, as reported by the Times of India.
India’s jewellers were understandably disappointed by Wednesday’s news.
The Chairman of the All India Gems and Jewellery Trade Federation told The Hindu that the industry had lost between 30 and 35% of its business over the past six months.
