Gold regains premium, January import still much lower

Price trend in futures market suggest players discounting 2% gold import duty cut in last budget

Gold has again started being quoted at a premium again in Mumbai’s Zaveri Bazaar. However, this has not attracted importers and, in January, imports are estimated around 30 tonnes compared to the previous month’s 39 tonnes.

According to market sources, gold is quoting a premium of $3-4 per ounce. Gold import in January this year was 41 tonnes. Interestingly, the price trend in futures market suggests players are discounting 2 per cent gold import duty cut in the Budget.

The net import bill in dollar terms in the current financial year has been higher by 10 per cent to $25.8 billion for the first nine months. Moderating imports if continues in February, which is likely, might help containing the bill in desirable limits. However, lower imports also limit cash-starved government’s duty collection.

In tonnage terms, however, imports in April-December 2014-15 are much higher at 733 tonnes compared to 505 tonnes in the first three quarters of previous financial year.

Gold was quoting at a discount of $10-15 per ounce a month ago following huge imports that took place in October–November and that stock was getting absorbed in following months.

However, in November, the government removed all restrictions, including 80:20 prescriptions on gold imports but since then imports have remained under control.  Banks are not importing because of lack of clarity on certain terms, which are technical in nature. Lack of domestic demand and prevailing discount had made it even lesser attractive. Interestingly, Ketan Shroff, spokesperson for the India Bullion and Jewellers Association, said they have recommended a cut in import duty of gold to the government.

On Saturday, spot gold closed at Rs 27,600 per 10 gram, while April futures are quoted at Rs 27,300 per 10 gram, indicating that market players have shorted April futures expecting a cut in import duty in the Union Budget.

Generally in MCX gold futures difference in spot and futures prices is confined to premiums in spot market and cost of carry in futures. However expectation of duty cut has kept futures price much lower.

This typically happens because gold price are arrived at by calculating landed cost of imports adding expenses and taxes. If duty is cut, import cost and hence the price will come down.