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India's Gold Deposit Scheme Targets "Easy" 200 Tonnes

Refiner MMTC-Pamp aims to mobilize household gold as CAD hits 1-year high...
 
INDIA's much-awaited gold deposit schemes can "easily" unlock 200 tonnes per year from existing household stockpiles, according to state-backed refiner MMTC-Pamp, helping boost legal supplies and reduce smuggling in the world's No.1 gold-buying nation.
 
"The annual [private-sector] requirement is around 900 tonnes," said managing director Rajesh Khosla last week, "and the economy can afford to import around 700 tonnes.
 
"The balance will be easily bridged by effective schemes."
 
With no domestic mine output, India's world-beating gold demand has to date been met by imports from abroad. But surging demand on the gold price crash of spring 2013 helped take the country's current account deficit (CAD) with the rest of the world to record levels near 5% of GDP.
 
Faced with a sharp drop in the Indian Rupee's exchange rate, the government and central bank responded with a raft of anti-gold import rules, effectively shutting legal inflows in summer 2013. Since then, and with perhaps 25,000 tonnes of gold held by Indian households and temples – the world's heaviest buyers until mid-2013's strict rules – banks and government officials have repeatedly talked about "mobilizing" some of India's existing stockpiles.
 
MMTC-Pamp – a joint venture between the state-owned refiner MMTC and Switzerland's Pamp – says it is now working with commercial banks to launch a savings account with a 3-year term, into which consumers can deposit physical gold.
 
The depositor's gold will be sold to help meet new consumer demand. Then, on maturity, says managing director Khosla, "the interest is [paid] not in Rupees but in gold and the investor has more gold in the account."
 
Similar gold deposit schemes announced by the All India Gem & Jewellery Trade Federation last October as 'Suvarna Nivesh Yojna' still have yet to launch, because although "the previous regime was happy, [it] could not decide upon" details, according to the GJF.
 
Illegal gold smuggling into India since the anti-import rules were introduced last summer has been estimated at perhaps 200 tonnes by market-development organization the World Gold Council.
 
In the last 2 months alone, security agents at Delhi's Indira Gandhi Airport have recovered nearly 6 kilograms of gold – worth a quarter of a million US Dollars – from toilets in Terminal 3.
 
"The toilets," says India Today, "are being used by inbound smugglers as a place to leave the gold, where it is picked later by an accomplice, almost always an airport employee."
 
A slight relaxation of India's gold rules in June saw imports of the metal jump 65% from May, helping take India's CAD to a 1-year high during the April-June quarter at 1.7% of GDP.
 
News of that surge comes as trade body the GJF says investment gold sales fell 70% over the last 5 months compared with the same period in 2013.
 
The rising import level, says precious metals analyst Jonathan Butler at Japanese conglomerate Mitsubishi, "adds to evidence that physical gold demand in India is improving.
 
"With the busy wedding and festival season now getting underway, this may indicate a degree of price support for gold from the physical side in the coming weeks."
 
Despite failing to roll back the key anti-gold import rules as many jewelers and supporters expected, India's new BJP government – led by Narendra Modi – is likely to be relaxed about the rising CAD, other analysts believe.
 
"The deficit is getting easily financed," Bloomberg quotes Nomura bank's chief economist in Mumbai, Sonal Varma.
 
"As the economy grows, imports will grow, so there will be some widening in the CAD. But we don't expect it to be above sustainable levels."

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