No Gold Rush Yet Despite Price Fall
Consumer, jeweller expect further dip
Gold prices have tumbled more than .` 800 per 10 gm in the past four trading sessions through Wednesday intraday after the RBI eased restrictions on the trade. But consumers and jewellers are not rushing to buy the precious metal as they expect prices to fall further. They widely anticipate a reduction in import duty, which at present is 10%. The RBI has allowed more entities to import gold and lifted a year-old ban on banks to give gold on lease, making it easier for the gold trade, which has been against the restrictions that were imposed when India’s current account deficit was widening alarmingly. On Wednesday, the intraday spot price of gold was .` 27,330 per 10 gm, down 3.1% from a week ago. Jewellers like Rajeev Sheth, CMD of the listed Tara Jewels, said order placement had slowed amid speculation in markets of a likely cut in import duty, currently at 10%. Even Joy Alukkas, CMD of Kerala-based eponymous jewellery outfit, said jewellers preferred to “wait and see” whether the new NDA government cuts the high levy — which market circles hold responsible for the surge in smuggling — before placing orders. RBI’s move to allow star and premier trading houses to import gold, in addition to certain banks and agencies like MMTC, has pushed down premiums these entities charge to customers from 5-6% to 2-3%, said Man- ish Jain, MD, Pannalal Mahesh Chandra Jewellers, based in Delhi’s Chandni Chowk area. This has made gold in the local market cheaper. Now, there are expectations of a cut in import duty, he added.
The futures price of gold on Wednesday bore out market expectations of the metal becoming cheaper. On Wednesday, at 4 PM, the August gold contract on MCX traded at .` 26,213 per 10 gm, or an almost 3% discount to the June gold contract rate. On May 21, the August contract traded at a 0.8% discount to the June contract. The discount has widened in keeping with the perception that NDA government may tinker with the duty rate.
“The futures market indicates that traders on Wednesday expected the gold price to decline in August from current levels,” said Suresh Nair, director, ADMISI Commodities.
In the futures market, mid or far dated gold contracts trade at a premium to a near month contract. This is known as contango. However, since August last year, after the government tightened restrictions on gold, allowing imports only by certain nominated agencies, and that too subject to their giving 20% of a consignment for exports.
Consumers widely anticipate a reduction in import duty, which at present is 10%