Spot gold premia decline

RBI had allowed procedural relaxation for imports and allowed export houses to import gold on 21 May

The Reserve Bank of India (RBI)’s move to liberalise gold import norms has started showing results. In the last few days, import flow has increased, resulting in a fall in spot premia. It is believed in four-five days, banks imported seven-eight tonnes of gold. In the last two days, the premium for physical delivery has fallen by half to $20/oz.

At Zaveri Bazar here, spot prices have fallen to below Rs 27,000/10g. A source involved in importing gold said, “The market has started discounting for the import duty cuts in gold expected in the Union Budget to be announced early next month.”

On Saturday, the gold price in the spot market here closed at Rs 26,940/10g, an 11-month low. In intra-day trade, it the price had fallen to Rs 26,800.

Now, sub-Rs 26,000/10g levels seem possible after the Budget, when the import duty is likely to be cut. Any sharp fall in international prices will add to the fall.

On May 21 this year, RBI had allowed procedural relaxation for gold imports and allowed export houses to import gold. It had also allowed taking gold on loan from importing banks. This, however, hasn’t picked up, as banks are yet to resolve the pricing issue. Though gold is imported and loaned to jewellers, the pricing is done when jeweller returns the gold to the lending bank. As loan periods usually exceed three months, spot premia are different after a loan period is over; the import duty, too, might be different.

A source in the know said, “This is becoming an issue for lending banks, as they are not able to conclude how to price gold when jewellers return the gold taken on loan.”

As there are widespread expectations the import duty on gold will be cut from 10 per cent to seven-eight per cent in the coming Budget, banks may start providing gold loans in the real sense only after that. And, by that time, premia and prices would have been adjusted.