Gold premiums in Mumbai have fallen to their lowest since before the Hindu festival season following a lifting of restrictions on imports that has left many onlookers scratching their heads.
The Mumbai premium for gold has fallen to $4-6 per ounce on one-kg bars over the London spot price from $10-15 a week ago.
The abolition of the 80:20 rule, which made it mandatory for companies to export 20 percent of any imported gold, has caused widespread confusion, sources told FastMarkets, with imports since the decision on Friday almost ceasing completely.
New restrictions could be on the cards in the form of a general cap on the annual volume of gold that can be imported, they added – possibly of 700-800 tonnes. Imports this month are seen at 50-70 tonnes.
Imports during November soared to a still-to-be confirmed 109 tonnes on news that the Reserve Bank of India (RBI) was reviewing import restrictions.
A member of the RBI has since indicated that the recent crash in oil prices to multi-year lows has made the country “better placed” on its current account deficit. India’s trade deficit was $13.4 billion in October, down from $14.2 billion in September but up from $10.8 billion in August.
But a “long-term solution” is needed to tackle the deficit, which will only re-emerge should oil prices recover, Metals Focus’ Chirag Sheth said.
Smuggling remains an issue – stringent import duties and restrictions that have been in place since 2013 have encouraged the illegal flow of metal to the country, which vies with China as the world’s largest consuming nation.
“If the country is seriously keen on reducing smuggling, then the government needs to cap or reduce import duties,” Sheth added. “The general perception here to the new rules is that there needs to be more clarification and that the rules need to be put into perspective in relation to the current account deficit.”
In China, spot premiums on the Shanghai Gold Exchange remain at $2 over spot, with demand flat despite fluctuations in the gold price.
Still, consumers are said to be taking advantage of cheaper prices in preparation for the Chinese New Year in February, an auspicious period to gift gold, market observers said.
Prices on international markets have recovered to current levels either side of $1,200 per ounce from four-year lows of $1,131.60 in October, albeit down from a 2014 peak of $1,388.
The Hong Kong premium is down at $1.10, a four-week low, as was the Singapore rate at $1.20, while Dubai slipped to $0.80, the lowest in more than two months, sources said.
(Editing by Mark Shaw)
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