India Gold Prices "Tumble" on Easier Import Rules

First steps in easing India's import rules sends gold prices lower...

 

GOLD PRICES in India "tumbled" on Thursday according to local dealers, after the central bank announced the first step in easing the strict import curbs which have pushed up to 25% of the world's heaviest consumer flow onto the black market.

 

Imposed to reduce visible imports, the rules have helped India's current account deficit with the rest of the world fall by two-thirds from the record levels which pushed the Rupee to all-time lows on the currency market in summer 2013.

 

With the BJP's Narendra Modi now set to become prime minister after the ruling Congress Party's landslide defeat in national elections this month, the Reserve Bank of India yesterday said private jewelry firms – known as "star trading houses" – can now begin importing gold bullion for production, the first time since 2013.

 

Some companies can also now start borrowing money to finance gold imports too.

 

Modi has been a vocal supporter of India's jewelry and bullion business, arguing that the import curbs – an effective ban with the 80:20 rule demanding that importers re-export one-fifth of a shipment before taking delivery of their next – have increased gold smuggling and the "hawala" black economy of corruption and bribes.

 

"RBI's easing of 20:80 gold import norms is positive for the gems and jewellery industry," the Economic Times quotes Mohit Khamboj today, president of the India Bullion & Jewellers Association (IBJA).

 

With Indian gold prices falling Thursday to a 9-month low of 28,550 Rupees per ten grams – equal to $1525 per ounce – Khamboj told the Economic Times he sees a further 20% drop in prices by Diwali, the major Indian gold buying season falling in late October this year.

 

In the global gold market, the increase of legal flows to the former world No.1 consumer nation "has helped underpin the price," said London broker David Govett at Marex on Thursday morning, "but we will need a lot more before Indian imports can reach the heady heights of 2012 and 2013."

 

In contrast to India gold prices, shares in major jewelry manufacturer and retailer Titan Co. Ltd (BOM:500114) jumped 11% at Thursday's opening in Mumbai, edging back to close at the highest level since a stock split in June 2011.

 

India's largest jewelry retail chain, Gitanjali Jems (BOM:532715) added almost 12% for the day, taking its stock above twice the level of end-2013's four-year lows.