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India Gold Imports Ban Stays on US Fed Taper "Risk"

Gold imports to remain tightly controlled, smuggling likely to grow further...
 
INDIA'S virtual ban on legal gold imports will continue into 2014, contrary to earlier comments from officials this week, because of the risk to the Rupee from possible US Fed tapering, says a senior source.
 
Speaking to Reuters on condition of anonymity, "There is no proposal to relax restrictions on gold imports," the source – apparently a " top finance ministry official" – told the newswire.
 
Because "a US decision on tapering its monetary stimulus could come at any time," he says. "That could have severe implications for the Rupee."
 
Sharp outflows of capital and weak equities in emerging markets have been blamed this year on the continued threat of US tapering, with the Federal Reserve openly discussing the odds of reducing its $85 billion in monthly asset purchases.
 
As the Fed's "taper talk" went public in mid-year, the Indian Rupee sank to new all-time lows of 65 per US Dollar, spurring record gold bullion imports to India.
 
June and July then saw the Indian government impose a virtual ban on gold imports, by demanding the re-export of 20% of any new shipments. It had already raised gold import duties to 10%, and banned the use of trade credit for inflows, as well as banning the import of bullion gold coins.
 
Falling as low as 69 per Dollar by September, the Rupee has since recovered to 61.7 as India's current account balance – the net flow of cash into the economy – has recovered from a negative 4.6% of GDP in the last financial year to below 3.0% in 2013.
 
Noting the improvement in India's CAD, "A review of the duty structure and the measures to restrict exports is expected by this month end," a separate finance ministry official had earlier told reporters on Monday.
 
India's official CAD data does not allow for illegal gold inflows, however, now put at half-a-tonne a day by Directorate of Revenue Intelligence officials.
 
Less than 1 tonne per day of legal gold was landed during the July to September quarter, official data say.
 
"Across the border in Pakistan," says the Economic Times, "gold imports surged almost 10-fold" in the same period, reaching 3.2 tonnes and causing the government there to ban foreign purchases of gold for a month.
 
Forecasts prior to the 10% duty, trade credit ban, and re-export rule said India's gold smuggling could rise by 40% in 2013.
 
In neighboring Thailand or Dubai, says South Africa's Independent Online, the price of 24-carat gold is lower than India's by some 25%.
 
Some of India's neighbours "have informally raised the issue" of its high customs duties boosting illegal gold trading to the sub-continent through their countries, says the Economic Times.
 
Market-development organization the World Gold Council noted last month that "gold [is] entering India unofficially through its porous borders helped to meet pent-up demand."
 
"Most [consumer] demand is being met by recycled gold," claims vice-president of the Mumbai Jewellers Association Kumar Jain, pointing to so-called "scrap" sales by existing owners.
 
"We don't prefer paying high premiums to MMTC," he adds, referring to the Indian-government owned bullion refining plant.

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