Bullion traders have sought permission to directly import gold. Traders’ body, the Bombay Bullion Association (BBA), has recommended the government to allow traders to import gold directly and do away with any restrictions on their imports.
A couple of months ago, the Centre had allowed the Gem and Jewellery Export Promotion Council, Diamond India Ltd and such other bodies of exporters to import gold on behalf of their members. While these agencies have not yet begun full-fledged imports of gold, trade circles say that presently they have to buy gold from banks and they charge a premium when the demand is high. If banks and exporters bodies are allowed to import gold even they should also be allowed.
In the past, the government had discussed the possibility, freeing gold imports and exports. But the Reserve Bank of India had objected to it arguing that gold is a virtual currency and freeing import and export of gold will amount to the virtual convertibility of currency on capital account for which India is not ready yet.
BBA has also recommended the government to remove value addition norms for the export of gold and gold should be allowed to export in the same form on which it has been imported. The trade body also said that central sales tax on gold should be removed.
However, bullion analyst Bhargav Vaidya said that time was not ripe for freeing gold imports and exports as that amounted to the full convertibility of currency. He suggested increasing import duty on gold from a specific rate of Rs 10,300 per kg to 1 per cent of the value of imports and higher revenue should be used for welfare of protecting, training and health of gold artisans.
Meanwhile, gold imports have slowed down as the local market has been quoting at a discount consistently and lack of demand because of a slack season and higher prices. However, sources in bullion trade said that with falling prices, discounts in local price compared to the cost of imports is going away. Gold demand in India being price sensitive, a further boost to demand may take place only after prices correct further.
According to industry estimates, there was negligible import of gold during February and March while the net import of gold in the first five months of calendar 2009 is estimated about 100-110 tonnes. But, because of some reverse arbitrage, where domestic prices were around 2 per cent lower than international prices, around 60-80 tonnes of gold in crude jewellery has been exported from India.
Globally gold prices have been falling on reduced demand and “if gold breaks support of $920 decisively prices can fall below $900. Falling demand trend suggest there is room for correction in gold prices in near term,” said Aajay Kedia, director, Kedia Commodities.
Globally too, fresh ETF buying has slowed, with SPDR, the largest exchange-traded fund, recording no inflows since the beginning of the month. Prices have corrected and quoted at $932 per ounce. In the last six weeks, 58 tonnes of gold has been added to ETFs.
In Mumbai market, gold is trading around Rs 14,500 per 10 gm.
Speculative interest in Comex gold has risen for six consecutive weeks as tactical investors increase long positions — both on a gross and net basis — to their highest level since July last year. Since April 21, long positions in Comex gold have risen 161 tonnes, while during the same period, 58 tonnes of gold have been added to ETF holdings.
According to Barclays Capital, “A new catalyst will be required to push gold prices higher. However, on fall, expectation of good jewellery demand emerging below $900 would limit the downside.”
Source : Business Standard