Gold imports double in September quarter despite GST, PMLA notification

GFMS Survey also sees strong demand in December quarter, projects high prices next year

Gold imports in the September quarter doubled despite the complications arising out of the goods and services tax (GST) implementation, money-laundering restrictions, curbs on export houses and a dull demand season.

According to a GFMS Thomson Reuters gold survey released on Thursday, “The September quarter’s official gold imports were 132.7 tonnes, representing a 66 per cent rise.” 

Due to a loophole in the import policy after implementation of the GST, 33 tonnes of gold is estimated to have been imported from South Korea during July and August under a free trade agreement. If these imports are considered, official gold imports during the September quarter were 165.7 tonnes, more than double the imports in the same quarter a year ago.

The April-September gold import bill is $17 billion, up from $7.9 billion in the same period a year ago. The gold import bill for 2016-17, according to the commerce ministry, was $27.4 billion.

Smuggling of gold was rampant during the September quarter. The GFMS survey states 46 tonnes of gold were imported unofficially during the quarter, up from 25.2 tonnes in the same period a year ago. The smuggled gold was used to replace official gold as jewellers sold unofficially imported bullion to customers but showed such sales against exchange of old jewellery, the report added. 

“Demand from agricultural households is estimated to increase by 21 per cent in the 2017-18 crop year based on our econometric model studying the relation between the monsoon and gold demand. This is likely to have a positive impact on the unofficial gold trade, given most of the transactions are likely to be in cash,” the report said.

Imports increased at a time when gold demand fell after the GST was rolled out. In August, the government issued a notification bringing the jewellery trade into the ambit of the Prevention of Money Laundering Act, requiring customers to submit their proof of identity to jewellers, who were required to report all trades above Rs 2 lakh. The report said jewellery demand for gold during the September quarter was 141 tonnes, 17 per cent higher than in the same period a year ago, while investment demand was 10 per cent higher at 24.3 tonnes. 

Global gold jewellery demand was 685.6 tonnes during the September quarter, the report said, 7.3 per cent higher than the 639.4 tonnes in July-September 2016. Gold traded above $1,300 an oz during the quarter, which kept demand under check. The report said the “lackluster demand is some 22 per cent lower than two years earlier and key to the burgeoning surplus”.

The report is bullish about next year’s gold prices. It estimates gold prices will move above $1,300 later this year and will average $1,360 in 2018 and hit a peak of almost $1,450. A reason for this is the rising risk in global equity markets, “with the S&P 500, DAX and FTSE at all-time highs in recent weeks”. The report said some investors would make or increase their allocation to gold rather than being caught heavily in an equity-fuelled basket. This is likely to be supported by continued geopolitical tension.

The GFMS estimated India’s gold imports in the December quarter at 140 tonnes, taking total imports to 780 tonnes by the end of the year. “Hallmarking rules will be the next important development to look out for, specifically the timeline and implementation plan. This will cause a rush to convert jewellery to the standardised 22 carat, 18 carat and 14 carat purity. This will create additional demand and see many small jewellers exit the trade,” the report said.