No Gold Rush Yet De­spite Price Fall

Con­sumer, jew­eller ex­pect fur­ther dip

The Economic Times - - Markets & Finance - RAM SAH­GAL

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%

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