Gold imports into India have returned to more normal levels and could climb higher in 2015 amid tepid bullion prices and improved domestic economic conditions, Sunil Kashyap, Bank of Scotia-Mocatta managing director, said at the London Bullion Market Association (LBMA) conference held in Lima.
Last year began normally, demand was stable and imports were coming in at around 50-60 tonnes per month. Then the Indian government introduced a slew of measures, starting with custom duty increases from 2 to 10 percent of the value of gold.
In July 2013, the Reserve Bank of India implemented the controversial so-called 20:80 scheme in an attempt to control the escalating current account deficit and stabilise the rupee. Under the rule, every importer had to ensure that 20 percent of all the gold brought into the country would be made exclusively available for export.
“These measures led to a sharp decline in official imports – they fell to 5 tonnes in September. Once the market got its head around the new policy, imports resumed but only to about 15 tonnes in December,” Kashyap said.
But in 2014 the pace of official imports started to pick up steam. The real turning point came in May when the government increased the number of star trading houses/premier trading houses (PTH) that would be allowed to import gold.
Over the last three months, imports increased to an average of 60-70 tonnes per month. And even when accounting for the 20:80 rule, net imports into India are running at about 40-50 tonnes per month.
“We’re now seeing regular imports of gold,” Kashyap said. “This has led to much more availability in the market – premiums have fallen from $50-$100 to $5-$10.”
Meanwhile, domestic Indian gold demand next year will hinge on two factors. The first will be price, which has been falling over the past several months.
Gold futures on the Comex division of the New York Mercantile Exchange closed Tuesday at $1,163.00 an ounce, which is about $225 below the February high.
“Most people see the price going lower, so the expectation is that demand will improve,” Kashyap said.
The second driver for demand growth will be the macroeconomic conditions inside India, which have improved significantly since Prime Minister Narendra Modi took office in May.
“The currency has been more stable, trading in a range of about 2 percent this year compared to a range of 10-15 percent last year. Inflation in September was at a five year low of 3 percent, while the stock market reached record highs this week,” Kashyap said.