Brexit gold rally seen cutting Indian imports to 7-year low

Prices in Mumbai highest in almost three years, demand threatened

THE surge in gold prices after Britain’s vote to quit the European Union will deal a further blow to demand in India, the second-largest consumer, and may cut imports to the lowest in seven years, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation.

Purchases from overseas are seen slumping to about 700 tonne this year, Bamalwa said by phone from Kolkata on Wednesday. That’s a decline of 23% from 2015 and the smallest since the country imported 559 tonne in 2009, data from the London-based World Gold Council show.

Demand in India, the world’s biggest user after China, has already been hit by increased prices since the start of the year, poor rural demand because of a drought, and a jewellers’ strike to protest a government excise tax. The Brexit vote has driven prices in Mumbai to the highest in almost three years, threatening domestic demand and forcing importers to reduce purchases.

“Price is a very important factor for Indians and if it remains at these levels then I don’t see much recovery in demand,” Bamalwa said. “The million-dollar question is what will be the price in the coming months.”

Gold futures in Mumbai have climbed 4.3% since the referendum on June 23, taking their gain this year to 25 percent. The vote has prompted banks to raise their forecasts for international prices. Morgan Stanley boosted its 2016 outlookby8%andits2017view by 13%, while Goldman Sachs Group increased its three-, sixand 12-month targets by $100. The rally will deter purchases even if the monsoon performs well, Bamalwa said.

Deep discounts: Weak demand since the start of the year has forced dealers to sell gold at a discount to clear inventories. Brokers are offering gold to jewelers at discounts ranging from $12 an ounce below the London cash price for officially imported metal to $70 for contraband, the trade federation said. Gold traded at $1,317.65 an ounce in London on Thursday.

“The official import quantities are dismal,” with a lot of supplycomingthroughillegal channels, said Rajesh Khosla, the managing director of MMTC-PAMP India Pvt. Ltd., the nation’s biggest bullion refiner. Bamalwa estimates that smuggling may amount to 250 tons this year from 200 tons in 2015. Bloomberg