Gold could get a lift from rising Indian imports
Investors seeking alternatives to the weak rupee and stocks are expected to bolster traditional festival-season demand
Mumbai — India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee.
Traditional buying will also rise during the festival season, said several sources involved in the market.
Increased buying by the world’s second-biggest gold consumer would support global prices that have traded near $1,200 an ounce since late August, but also widen India’s trade deficit and add to pressure on the Indian rupee, which fell to a record low on Wednesday.
The rupee is consistently falling... prompting investors to hedge their risk
In the fourth quarter of 2018, gold imports could rise 9% from a year ago to 250 tons, said Bachhraj Bamalwa, a bullion dealer who was formerly the chair of the All India Gems and Jewellery Trade Federation.
"In the December quarter, festival demand would be robust. Investment demand is also gaining traction," he said.
Demand for gold usually strengthens at the end of the year on purchases for traditional weddings and major festivals including Diwali and Dussehra, when bullion buying is considered auspicious.
In the fourth quarter of 2017, India imported 229.6 tons of gold, according to metals consultancy GFMS. Gold investment demand may rise as falling stock markets have prompted investors to diversify their portfolios, Bamalwa said.
India’s NSE equity index has fallen 7% from a record peak in August, while local gold futures have risen 6% since the recent low hit in mid-August.
"[The] rupee is consistently falling and we don’t know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold," said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in Chennai. The rupee has fallen 13% in 2018, increasing the price for dollar-denominated bullion in rupee terms even as gold has dropped 7.6% in 2018.
Investment demand for gold had dwindled since 2014 as India’s equity markets rallied on optimism that Prime Minister Narendra Modi would rejuvenate the economy.
An appreciating rupee also cut into demand at the time.
"Stocks have doubled in four years, but now investors think there is limited room for upside. So they are moving back to gold," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.
Mangesh Parekh, an apparel merchant, bought two gold coins, each weighing 10g, last week. "I have invested in stocks through mutual funds. Now since stocks are falling, I am parking a small amount in gold."
Indians usually buy gold as jewellery, but investors prefer gold bars and coins to save on jewellery-making charges.
India’s government has, in the past, raised import taxes on gold to bolster the rupee since it is seen as a nonessential commodity. But that may not be a viable option as a hike in import duties could boost gold smuggling and black-market sales, said Harshad Ajmera, a gold wholesaler in Kolkata.
Smugglers brought in about 120 tons of gold in 2017, with nearly the same amount expected in 2018 unless the government reduces import taxes, the World Gold Council estimated.
In 2013 India raised gold import taxes to a record 10%, while in 2017 it added a 3% sales tax. For now, India’s finance ministry does not favour raising the tax but investors buying gold currently are expecting a better return if a duty is levied later, said the head of a bullion importing bank in Mumbai.
"If the government raises import tax by 3% as speculated, returns will go up by 3%.
"Gold becomes more attractive for investors," Ajmera said.