Import of gold in the financial year that has just ended is estimated at six year low at 557 tonnes which is lowest after 2007-08. The fall in import is following stiff import curbs including very high import duty. Return from gold also came down marginally in FY14.
However internationally gold investors lost 19.4%, in India due to lower rupee (10.36%) and increase in duty as well as high premiums for physical delivery, fall in returns from gold was curtailed only to 3.17%.
In the month of March import is expected to be around 35 tonnes taking the March quarter total at 90 tonnes which is 80 per more that December quarter imports. Had the import in March quarter would not have improved, India’s annual import would have fallen to a decade low.
Apart from curbs, that had led to gold entering unofficially in the country, crash in gold prices in last April and another similar crash a quarter later had questioned the attractiveness of gold as a safe haven which together curtailed official imports of yellow metal.
However, in India, people’s love for gold has not vanished as prices here are not falling sharply. If one looks at calendar year demand data provided by the world gold council (WGC), demand in calendar 2013 has gone up, though there was big contraction in investment demand in second half while jewellery demand in second half fell marginally and that too because of non-availability of gold due to stiff curbs of permitting 80% of imported metal to be used for domestic market after exporting 20% under Reserve Bank of India’s 80:20 rule.
This means that Jewellery and investment demand in first half of the calendar year 2013 negated the fall in second half, thereby, lifting the aggregate demand by an average 13%.
The change in trend in second half however has implications for jewelers balance sheet. According to Sudheesh Nambiath, Precious Metals Analyst, GFMS, Thomson Reuters, “for jewelers contraction in imports in second half has to be viewed in context of rise in capital costs and reduction in inventory levels. So sales has improved against fall in net profit.”
Some of these impacts have been seen in December quarter results of the jewellery companies and more may be seen in March quarter. One company Shree Ganesh Jewellery House is already approached banks for restructuring its debt under CDR while many have put their retail expansion on hold or on slow track.
What had added to that was scarcity of gold due to much lower import and demand outweighing supply resulted in very high premiums quoted for physical delivery. At one point of time during Diwali days, premium was quoted around $170 per ounce which is now quoted at $45.
Despite official imports and import of gold through smuggling sale of old jewellery and replacement import for gold under gold deposit scheme of banks aided supplies. Even in FY 14 World Gold Council has estimated that unofficial import of gold could be as high as 200 words.
Going forward, in terms of prices, “Gold is expected to be under pressure in 2014-15. Geo-political tensions (if escalates) could support on and off though,” said T Gnanasekar, Director, Commtrendz Research & Fund Management.
He attributes four major factors that could keep gold prices under pressure in near future.
Gold friendly stimulus measures are coming to an end and even interest rates to go up as soon as 2015, which means cost of holding a zero yield asset will discourage holders. Third point is producer hedging interest is gaining momentum as the view changes for gold and more hedgers ready to hedge at higher levels. This means mines have started selling their future production for future deliveries.
Fourth point he mentions is that domestic prices of gold could be under pressure due to Rupee. The local currency looks to be stronger in the coming quarters.
The fourth point however he hedges with possibilities of relaxing import norms. He says, “the government being comfortable with the current account deficit situation, could keep the duties intact, but could probably remove the conditional export clause. Imports are bound to improve if this decision is taken before Akshaya trithya which is one month away.”
