SURGING GOLD PRICE DIMINISHES INDIA’S SHORT-TERM APPETITE FOR ITS IMPORTS
▶ The UAE is an important supplier of the precious yellow metal but record-high prices mean it has lost some of its shine, writes Rebecca Bundhun in Mumbai
India’s imports of gold are taking a hit as prices have hit a record high – and industry experts say this, in turn, will affect flows from the UAE, the South Asian nation’s second-largest source market for the precious metal.
“The gold price surge has dented consumer demand,” says Sachin Kothari, director at Augmont Gold For All, a gold refinery and bullion company based in Mumbai.
“Indian investors are not able to digest higher gold prices. Wholesale demand by jewellers has also decreased in March and April due to rising prices – therefore gold imports are expected to come down.”
Gold prices have risen globally, crossing $2,400 an ounce last week, amid geopolitical tension as investors expect interest rate cuts by central banks later this year.
The UAE is the largest source of gold imports into India after Switzerland. The Emirates accounted for about 20 per cent of the Asian country’s gold imports in the quarter ending in December, according to the World Gold Council.
Data from India’s Ministry of Commerce shows that gold imports stood at $35.95 billion between April and December last year.
The high prices will inevitably affect India’s source markets including the UAE, says Colin Shah, managing director of Kama Jewelry and the former chairman of the Gem and Jewellery Export Promotion Council.
“April, May, June, you will see a dip [in gold demand in India],” said Mr Shah. He forecasts that imports from the UAE into India will halve in the quarter to June, compared with the same period last year.
Reuters has reported that India’s gold imports fell by more than 90 per cent last month as steep prices hit demand.
This is particularly significant given that India is the world’s second-biggest consumer of gold after China, with India’s demand for gold standing at 745.7 tonnes last year, the World Gold Council’s figures show.
Gold is revered across India and forms an important part of Indian weddings. It is still a way of storing wealth for many people. The lull comes despite it being generally a peak time of year to purchase gold, as India’s wedding season is under way.
The UAE has become an important supplier of gold due to its role as a trade centre for the precious metal, mined from countries such as Zimbabwe, Russia, Mali, and Ghana.
India also imports gold from Saudi Arabia, which accounts for about a 1 per cent share of total gold flows into India, according to the World Gold Council. However, the UAE plays a much more significant role in the global gold trade, and in India’s purchases of the precious metal.
“The biggest reason is that UAE has built a very nice ecosystem for all the bullion dealers, who operate through Dubai for a variety of reasons, with taxation being the biggest one,” said Mr Shah.
“Most of the large refiners are either routing their gold through the UAE, or are refining in the UAE.”
Naveen Mathur, director, of commodities and currencies at Anand Rathi Share and Stock Brokers in Mumbai, says the supply comes from across the world but most of the trading companies are based in Dubai. “The miners, the suppliers have their presence there,” Mr Mathur says.
With the UAE dirham pegged to the dollar, that makes trade much easier for gold suppliers worldwide who typically operate in dollars, he says.
Another factor that has helped to increase the appeal of the UAE to India is an import duty cut of 1 per cent under a Comprehensive Economic Partnership Agreement between the two countries, which came into effect in 2022.
This reflects the two nations more broadly expanding their trade ties, to double their nonoil trade to $100 billion by the end of 2030.
“Instead of the standard 15 per cent duty, Indian importers can import gold from the UAE for a 14 per cent duty,” says Mr Kothari.
This has been “a major factor that has been prompting these imports”, says Kavita Chacko, research head for India at the World Gold Council.
Gold is typically bought in the form of jewellery, bars, and coins. Higher demand for the precious metal is usually linked to the months of
October to December and April to June, considered to be the “wedding seasons” in India.
“Anecdotal evidence suggests that both rural and urban centres have experienced a broad-based drop in demand despite the ongoing wedding season. It appears that jewellers and consumers alike are awaiting a price correction before they add to their stock.” says Ms Chacko.
Price rises over recent months compounded by this months continuing new records will further dampen India’s gold demand in the
Indian investors are not able to digest higher gold prices. Wholesale demand by jewellers has also decreased in March
SACHIN KOTHARI
Director at Augmont Gold For All
months to come, she adds. While India has – over the past couple of years – been importing about 700 to 800 tonnes of gold, “we expect the imports to be in the lower range of this estimate this year mainly due to record higher prices that gold has touched and also slowdown caused by trade restrictions due to coming general elections”, she says.
But she adds that “we expect the overall percentage share of gold imports from the UAE to be similar to last year”.
General elections in India are due to begin on Friday and will continue until early June. There will be heightened scrutiny on the movement of gold and cash during the next two months, says Sachin Jain, regional chief executive for India at the World Gold Council.
“Except during festivals, gold jewellery demand will likely [to] remain subdued during a large part of the second quarter, even if prices moderate over the coming months.”
But Mr Shah says he expects to see a pick up in gold demand after the election.
“Whenever there is an unprecedented spike in the gold price, once the price stabilises, it’s business as usual again,” says Mr Shah.
The medium to longer-term outlook is also bright for the gold trade relationship with the UAE, he says, because its proximity to India makes it an attractive import market.
“The freight cost is lower than say importing from Switzerland,” says Mr Shah.
As the cost advantages become more significant amid high gold prices and freight costs, “I think there will be more and more gold imported through the UAE,” he says.