Gold demand, import likely to rise with fall in price

Yellow metal no more a pressure point for CAD

The falling price of gold is expected to improve its demand and, hence, import. The sector estimates a rise in the latter of five to seven per cent in quantity over the coming months but not in value terms, due to the fall in price. Hence, the import bill is unlikely to be much higher.

Import had risen in June to 97 tonnes, after the Reserve Bank granted permission to star trading and export houses. It then dipped to 45 tonnes in July and 50 tonnes in August, due to depression in demand.

In 2013-14, the import was 638 tonnes, a decline of 25 per cent from the 845 tonnes in 2012-13. In value terms, the import bill was $28.7 billion in FY14. This year, FY15, it is estimated at 675-700 tonnes. In April to August, the first five months of FY15, 316 tonnes were imported officially, the bill being $11.5 bn. Aman Mohunta, economist, Nomura, said: “We expect the gold import bill to be $30-35 bn in FY15.

Adding: “Gold is unlikely to be a trouble-maker this year for the current account deficit (CAD), given the sharp moderation in prices compared to two years ago.”

Nomura thinks the CAD would be around 1.7 per cent of gross domestic product.

A veteran bullion analyst expects monthly import to average 50 tonnes till December.

In the past couple of months, imports have sufficed to meet the demand and, hence, physical delivery premiums have remained in check. At present, these are $10-12 an ounce. Festive demand is expected to improve in the next few days, with the fall in prices.

The global price is $1,213 an ounce. Thomson Reuters GFMS has said, “the next big level to watch on the downside will be $1,200 an ounce, which will act as an initial floor”. Since that floor is imminent, buying is likely to emerge.