The gold price has seen a sharp rally over Rs 1,000 in just three days because of global price rise on the back of increasing geo-political tensions
and resumption of safe haven demand for gold.
The Centre's ban on zero duty import of gold from South Korea
also has impacted the price. Because of this, a discount of around Rs 450 per 10 gram gold seen in the last week has shrunk to Rs 150-200 on Monday.
On Tuesday, the price of standard gold in Mumbai closed at Rs 29,765 per 10 gram, up 3 per cent from Rs 28,910 on Thursday.
International prices are trading at $1,322 per ounce on Tuesday.
A trader in Mumbai spot market said, "Today was a thin trading day amid dull demand due to heavy rains and discount is still quoted as Korean supplies arrived till last week is yet to get exhausted. [The] market is expected to turn to parity in coming few days."
Shekhar Bhandari, executive vice-president for global banking, at Kotak Mahindra Bank said, "Due to zero duty import under FTA (Free Trade Agreement), [the] government has lost Rs 750 crore revenue and now it will be prudent on [the] government's part not to allow such practices which affect the health of bullion business chain."
He has suggested that with Korea
route closing, the government should ensure that another such attractive route shall not open up.
So far, gold demand
was doing very well following a good monsoon. But, Monday's notification putting Gem and Jewellery sector under Prevention of Money Laundering Act (PMLA) has disturbed the sentiment of the gold trade.
On the condition of anonymity, a large trader said, "Business will be significantly affected due to stringent know-your-client (KYC) norms that jewellers will have to follow. Already requirement for PAN (permanent account number) above Rs 2 lakh of purchases is impacting [the] part of demand."
Shekhar, however, is optimistic adding, "New norms will push on account payment and make business more transparent."
Meanwhile, traders on Multi Commodity exchange
(MCX) have been covering short positions they built when prices were $1,280 per ounce last week. They have cut their positions as prices rose sharply.
Open interest, however, has increased by 900 lots in last few days. Among the top 10 respective long as well as short positions on MCX, short positions have shrunk 233 lots to 6,100 on Monday, while long positions have increased marginally to 3,755 lots, according to MCX
Traders have cut earlier short positions and now, those who missed bull run have sold gold at higher levels to recover losses, said a trader on MCX.