MUMBAI: Bullion traders in places like Ahmedabad, Mumbai and Kolkata, who procured gold at cheap rates, have been selling bars at a discount of Rs 10,000-15,000 a kg over the past few days to prevent inventory loss from a possible import duty cut on the metal from 10 per cent when the Modi government presents its first Union
Budget on Thursday.
However, these traders are not facing losses by selling the bars below the spot rate as they have procured gold at cheaper cost, said bullion dealers. For instance, many of these dealers have taken delivery of gold on commodity exchange MCX, where the futures contract has been trading at a discount to the spot rate for many months.
For instance, data on MCX shows 439.3 kilos of gold mini (100 gm) were delivered on Wednesday at Rs 28,066 per 10 gm (including VAT), a Rs 294 per 10 gm discount to the prevailing spot gold rate then in Kolkata.
If these traders sold gold at Rs 28100 or Rs 28,150 on Friday (a discount of.Rs 100-50 to the intra-day spot rate), they would still have made a profit of Rs 34-84 above their purchase price on MCX. The case was similar on other days too.
"The gold futures market is inverted, with contract price lagging the spot rate," said Ketan Shroff, MD, Penta Gold, a Mumbai bullion trader and jeweller. "Bullion traders have purchased gold at a cheaper rate on MCX. Even though they are selling gold at a discount to the spot rate on the physical market, they've still made a profit."
Kolkata-based bullion dealer Harshad Ajmera added that this was to protect themselves from a likely inventory loss. He attributed the discount by traders to their expectations of a 2 per cent import duty cut at the Budget, in which case the price would decline more than their procurement cost.
However, sales of inventory have not matched traders' expectations as gold jewellery offtake has been traditionally slack during the months of June-July. "Jewellers with requirement have been purchasing despite slack demand from customers and bullion traders hope they can exhaust their supplies before July 10," added Ajmera.
Though many traders are expecting a duty cut, a few largesized jewellers, especially in Mumbai, think otherwise as the premiums charged by banks have declined from a high of $190 an ounce to $7-15 currently because of improved supply since May 21 after RBI renewed import licenses of nearly a score premier trading houses.
Also, RBI may not be keen on the move as increased gold imports following a duty cut could widen the current account deficit and impact the rupee adversely, raising inflationary expectations.
Source : economictimes.indiatimes.com