Gold prices reverse overnight on withdrawal of 80:20 scheme

Sudden spurt in release by hoarders turns gold sell at a 1-1.5% discount from $12 premium until Friday evening

In a sharp reversal, spot gold was sold at a discount of 1-1.5 per cent in Zaveri Bazaar here on Saturday, following the government’s move to scrap the 80:20 import scheme. Until Friday evening, the commodity was being sold at a premium of $12.

Bullion dealers hoarding gold amid fear of fresh restrictions have now started releasing the commodity into the market gradually to cut losses.

In Mumbai, standard gold was quoted at Rs 26,300/10g, against the cost of import of Rs 26,600-26,650/10g, a discount of $5-6. In the London market, gold fell $24/ounce on Friday to settle at $1,167.9 an ounce.

“Mostly, jewellers hedge their risk in the spot market and book the quantity equivalent to their daily sales to maintain the inventory equilibrium. But in special cases, we avail of bank credit to buy additional gold in anticipation of a surge in occasional spot demand. Bullion dealers who book the quantity at prices lower than the prevailing price, extend the difference to their customers,” said Kumar Jain, partner, Umedmal Tilokchand Zaveri, a city-based bullion dealer.

Till Friday evening, bullion dealers were holding inventory, anticipating the Reserve Bank of India (RBI) would tighten gold import norms. However, the central bank scrapped the 80:20 scheme, 14 months after its imposition.

The decision has led to jewellers being unsure about the unsold quantity that was imported and stored in Customs warehouses by Friday evening. “We are awaiting a clarification from RBI on whether the imported gold will be distributed according to the pre-80:20 system or whether a new set of guidelines will be issued for distribution of the stored quantity. Until then, jewellers will have to wait for the fresh purchase lot,” said Vipul Soni, chairman of All India Gems & Jewellery Trade Federation.

A clarification is also awaited on the quantity of exports already committed by Indian jewellers. Most jewellers had stopped using the overdraft facility (availing of gold loans as working capital from banks) due to non-availability of adequate gold under the 80:20 scheme, squeezing operations. Now, with adequate availability of gold, the abandoned operational capacity will be restored. Investment demand in gold, at a near standstill due to jewellers staying away from coin and bar sales, will also get a fresh lease of life. This will result in a rise in imports through the official channel.

In October, gold imports stood at 150 tonnes, against 143 tonnes in September as buyers built stocks at lower price to meet the upcoming festive and wedding season demand.