Non-bank agencies keep gold tap flowing

Gold imports in May are estimated to have stood at 135-160 tonnes. In both months of the new financial year, starting April 1, these imports have been much higher than estimated.

In April, gold imports were 117 tonnes. On May 13, the Reserve Bank of India (RBI) restricted gold imports by banks on consignment bases (where the importing agency does not have to fund the stock at the time) to only genuine exporter need.

However, non-bank agencies allowed to import, such as state-controlled MMTC and STC and others, continued to import gold on a consignment basis. Import in April was high because of a rise in demand in the second week following a sharp fall in prices.

Circumventing RBI rules
Demand for physical gold was so high that mining companies quoted a premium of $5-10 an ounce. In April-end, while presenting the annual monetary policy, RBI said it intended to stop allowing banks to import gold on consignment bases for domestic needs.

To beat the curbs, banks imported heavily and the central bank decided to tell them to stop from May 13. After that, non-bank nominated agencies have become very active under this route, something RBI has been silent on. The World Gold Council has estimated total imports in the April-June quarter to be 300-400 tonnes. In April-June 2012, net gold import was 153 tonnes, it has said.

The clamp on consignment import is estimated to result in a fall of 100-120 tonnes. Banks imported 350-400 tonnes last year on a consignment basis for sale in the domestic market and some bullion traders used to rotate this for trading and speculation. “Since now imports on consignment bases is regulated, this speculative activity will also be under control and imports of 100-120 tonnes, used for creating artificial demand, could come down,” said a bullion trader on the condition of anonymity. “This will depend upon how the government ensures consignment imports for domestic market are curtailed,” said another analyst.