India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee.
At the same time traditional buying is expected to rise during the oncoming festival season.
Increased buying by the world’s second-biggest gold consumer would support global prices that have traded roughly near $1,200 an ounce since late August, but also widen India’s trade deficit and add to pressure on the Indian rupee, which is falling to record lows each week.
Bullion traders in India estimate that in the fourth quarter of 2018, gold imports could rise 9 per cent from a year ago to 250 tonnes. “In the December quarter, festival demand would be robust; investment demand is also gaining traction,” traders say.
Demand for gold usually strengthens at the end of the year on purchases for the traditional wedding season and major festivals including Diwali and Dussehra, when bullion buying is considered auspicious.
In the fourth quarter of 2017, India imported 229.6 tonnes of gold, according to metals consultancy GFMS.
Further gold investment demand may rise as falling stock markets have prompted investors to diversify their portfolios. India’s NSE equity index has fallen over 7 per cent from a record peak in August, while local gold futures have risen 6 per cent since the recent low levels in mid-August.
Falling rupee is also prompting investors to hedge their risk with exposure to gold. The rupee has fallen 13 per cent in 2018, increasing the price for dollar-denominated bullion in rupee terms even as gold has dropped 7.6 per cent this year.
The government of India has, in the past, raised import taxes on gold to bolster the rupee since it is seen as a non-essential commodity. But that may not be a viable option as a hike in import duties could boost gold smuggling and black market sales.
Smugglers brought in about 120 tonnes of gold in 2017, with nearly the same amount expected in 2018 unless the government reduces import taxes, the World Gold Council estimated.
In 2013 India raised gold import taxes to a record 10 percent, while in 2017 it added a 3 per cent sales tax.