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Gold Traders Split Over India's Anti-Gold Moves

Government action against gold, leads gold traders to a split respnse...

GOLD TRADERS in India are starting to split in their response to government attempts to curb demand from the world's largest gold consumer market.

Reliance Capital, a financial services company – and part of the Reliance Anil Dhirubhai Ambani Group, which had revenues of $1.1 billion in 2012 – is suspending the sale of physical gold as an investment product it said Friday, including the gold coins it sells through the Indian Post Office.

"We sincerely hope that all stakeholders across business, trade and industry will act in a responsible manner," said Sam Ghosh, CEO of Reliance Capital.

Gold traders should act "to minimise gold imports that have placed an unbearable burden on the Current Account Deficit, and are severely hurting the country's growth prospects."

In contrast, Shree Ganesh Jewellery House – India's largest manufacturer and exporter of hallmarked and handcrafted gold jewelry – is planning to get around a ban on using credit to import gold by borrowing cash from the money markets, it said today.

Selling commercial paper for the first time in over 18 months, Shree Ganesh Jewellery's general manager for gold, Praveen Gupta, said the company is responding to the ban on using credit to import gold.

The Reserve Bank of India issued new rules at the start of June, under which jewellers can only buy imported gold on a fully cash-paid basis.

Also this month, the Indian government raised import duty on gold from 6% to 8% to try and contain gold traders' inflows.

"The working capital needs of jewellers will definitely increase," says Gupta, speaking to LiveMint, the Wall Street Journal's news-site for India.

Noting the interest rates charged on short-term commercial paper, however, "Whether you’ll be able to pass on that interest cost [to end consumers] is a big question."

Shree Ganesh last year imported around 70 tonnes of gold. Reliance Capital sold some 5 tonnes according to press reports.

India's gold demand typically eases off during the four-month summer period known as Chaturmas, because of the lack of auspicious days for weddings on the Hindu calendar.

Aurelie Zoetelief Tromp is working as a research assistant at BullionVault, the No.1 gold and silver ownership service for private investors.


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