April gold surge not sustainable, say analysts

The massive spike in trade deficit caused by sharp rise in gold imports in April would not sustain and there is no need to get excessively worried over the data, analysts have said.

They also said the current account deficit or the difference between the foreign exchange earned and spent, will improve from the estimated 5.1% in FY13, to about 4% in the current year.

"We see the recent rise in gold imports as a bunched-up rise in pent-up consumption demand, which should fade over the coming quarters," brokerage house Nomura's chief economist Sonal Varma said in a note.

She said the weak domestic demand and fall in the prices of gold and oil will help narrow the current account deficit to 4.3% in FY14.

"Higher gold imports, in our opinion, are partly driven by festive demand on the back of Akhshaya Trithya. We expect gold demand to moderate in coming months on the back of lower prices and frontloaded demand," a note from another brokerage Barclays said.

It expects the CAD to narrow down to four%.

Trade numbers released yesterday for April said exports grew for the fourth consecutive month recording a growth of 1.6% but a more than doubling of gold imports worth $7.5 billion from UD 3.5 billion pushed up the trade deficit to $17.7 billion.

"The widening deficit in April should not be seen as the start of an alarming trend, as the March deficit is typically smaller given seasonal patterns," the Barclays report added.

In a note, ratings agency Crisil also said the seasonally-adjusted trade deficit was only slightly higher in April than March, and was lower than monthly trade deficit recorded between October 2012 and February 2013.

"For FY14, Crisil continues to expect merchandise exports to recover from a decline of around 3% last year and help contain trade deficit," it added.