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India Gold Imports Double on Diwali to "2013 Crash" High

Weak gold price spurs surge in India's demand, government mulls new curbs...
 
GOLD IMPORTS to India, the world's No.1 consumer nation until government import curbs dented legal supplies in 2013, leapt in October to the highest level in 17 months ahead of the key Diwali festival, new data show, threatening to widen the country's current account deficit with the rest of the world.
 
Costing some $4.2 billion last month, India's legal gold imports equaled some 106 tonnes at market prices, says analysis from Australian bank Macquarie.
 
"A large part were used for replenishing stocks by jewellers," notes the Business Standard in Mumbai, reporting that India's jewelry industry stockpiles – depleted by ongoing demand amid continued restrictions on new imports – grew some 50-60 tonnes over the two months to November.
 
Macquarie calls October's figure "not only also the highest figure since May 2013" – when gold's sharpest price drop in three decades spurred record Indian imports – but "almost double the average monthly import seen in January to September 2014."
 
New government rules effectively shut India's gold imports in summer 2013 in a bid to  cut the country's current account deficit (CAD), which dragged the Rupee currency down to record lows that August.
 
Although illegal inflows have been put at perhaps several hundred tonnes per year, gold-industry data show China overtaking India last year as the No.1 consumer nation for the first time. But under the new, pro-business BJP government of Narendra Modi, India relaxed some of its gold import rules in early summer 2014, sparking a sharp rise in June's imports. 
 
Already during the third quarter of this year, according to data compiled for market development organization the World Gold Council, India had reclaimed top spot.
 
"If gold imports do not fall after festive season demand wears off," warns Standard Chartered bank's head of research in Mumbai, Samiran Chakraborty, "we will look at a reasonably large trade deficit."
 
Speaking anonymously to the Wall Street Journal on Tuesday, one official from the Finance Ministry said fresh import restrictions could be imposed "as soon as" that day.
 
"We are working on it," the Reuters newswire also quotes an unnamed "source", adding that new measures "are almost ready."
 
But one reason the Indian government "might not be too concerned" about rising gold bullion flows, says Macquarie, is the plunging price of crude oil. A larger import good than gold for the world's most populous nation, oil costs fell 20% in October from a year earlier.
 
The "surge" in imports was "likely due to seasonal demand," agrees South Africa's Standard Bank, also pointing to the peak festival season of Diwali.
 
"Going forward," it adds, "current higher spot prices should naturally deter gold buying. Combine this with lower costs for importing oil, and it should result in India's current account deficit narrowing."
 
Analysts at Citigroup today forecast India's CAD for fiscal year 2014-2015 at 1.8%, down from the recent record of 4.8% hit in 2012-2013.

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