Indian gold demand wilts: retailers sell at discount

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IAC Photo by Parivartan Sharma

By Biman Mukherji

Indian gold demand have started to sag following a recent run up in prices to record highs, exacerbated by the recent budgetary hike in import duty to 12.5% from 10%, dealers said.

Prices of gold in key markets are currently quoting at a 1.5% discount to the landed price because of “slow demand,” said Haresh Acharya, director at Ahmedabad-based Parker Bullion.

“I don’t see price discounts fading away until at least August-September, when the festival demand starts picking up.”

Dealers are able to offer discounts by digging into old stocks, imported prior to the duty hike. Gold prices in India are currently hovering close to 34,500 rupees per 10 grams, largely due to rupee’s weakness against the dollar as a bump up in international prices.

Nearly all the gold consumed in India, which ranks along with China as a top buyer, is imported. An equally worrying aspect of the recent duty hike is that it has resulted in greater diversion of gold to smuggling, said dealers, adding that smuggled gold currently is about 2 lakh rupees per kilogram less than officially imported gold.

Illegal transactions in gold are rampant with smugglers often sneaking in their rich haul through porous borders of Nepal and Bangladesh by means such as ox carts. Passengers traveling from the Middle East like Dubai stash their gold innovatively in baggages, such as hidden inside computer laptop parts.

“This budget was an absolute killer for the gold industry. Honest players have no room left,” said a Kolkata-based dealer, who did not want to be identified. Indian gold industry is highly fragmented and dominated by small-time shops and players, many of whom have little qualm in resorting to relying on illegal gold.

However, some gold dealers felt that the impact of the duty hike may not result in a significant diversion.

“If there are red lights on the road, does it mean that you have to ignore them,” said Surendra Mehta, secretary of the Indian Bullion and Jewellers Association.

He also felt that the price impact of the duty hike won’t be huge and result in 80-85 rupees more per gram. But he did concede that it has come at a time of weak retail offtake.

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