MUMBAI: India, normally the world’s top gold importer, may have turned net exporter in the last few months as Indians melt down their jewellery to catch high prices.
India imported no gold at all in February for the first time, and traders say it probably won’t again in March. In fact, gold now appears to be seeping out of India in the form of gold coins, which allow big traders to skirt restrictions on exports, a trend that underscores the resistance to spot gold prices challenging last year’s all-time $1,030.80 high.
As Indian prices fell below global rates, an arbitrage opened for traders stuck with high stocks in a domestic market awash with gold as scrap sales surged as much as four-fold. The dramatic reversal in gold trade partly explained why world prices have been stuck at below $950 an ounce for the past month, despite continued heavy investment in exchange traded funds (ETFs) and several bouts of risk aversion. It may also pinpoint the pain threshold for Indian consumers, as well as the potential for changing retail behaviour in a rapidly developing economy — one that may be increasingly sensitive to high prices as the world battles recession.
In 2008 gold imports had almost halved to 396 tonnes, the lower end of typical annual imports of 400-800 that have prevailed even as population and incomes rose steadily.
Gap prompts exports: India’s central bank restricts the trade of bullion to prevent it from affecting the partially convertible rupee, but value-added gold, such as jewellery or coins, can be exported.
Though the exports do not evade the government’s rules, there is secrecy surrounding them because the gold coins would be used by the buyer as bullion, what the government wants to avoid. The motive is simple: profit.
The discount for Indian gold futures versus spot global prices widened to 500 rupees ($10) per 10 grams when gold struck an all-time high of 16,040 rupees ($317) per 10 grams on Feb 20, well above the 150 rupees gap that makes exports viable.
On Thursday, the local market had a discount of 100 rupees over the foreign prices with the April contract on the MCX trading at 15,230 rupees ($300). reuters
