Gold premiums jump after import curbs

By Siddesh Mayenkar

MUMBAI (Reuters) - Premiums for physical gold in India, the world's biggest gold buyer, have jumped sharply this week due to limited supply after the Reserve Bank of India (RBI) restricted imports to rein in a record current account deficit.

On May 13, the cental bank banned gold shipments by banks on a consignment basis except to meet genuine demand from jewellery exporters. That followed moves by the Finance Ministry in January to increase the import duty by 50 percent to 6 percent of value.

The majority of bullion wholesalers quoted a premium of 750-1,200 rupees per 10 grams over local spot gold on Wednesday as against 500-600 rupees last week, said Haresh Soni, chairman of All India Gems and Jewellery Trade Federation.

"Premiums have increased sharply ... and the market is in a dilemma now over what will happen if banks are not accepting new orders. Then what will be the supply channel?" Soni said.

On the physical front, most banks and jewellers awaited further guidelines on ways to import gold.

"People are just exhausting their old stocks, and even the market is slow," said Ketan Shroff, a director with Penta Gold, a wholesaler in Mumbai. Traders were in a wait-and-watch mode for new guidelines from the RBI, Shroff said.

Gold ranks second only to crude oil in India's spending on imports. In April, gold and silver imports more than doubled from the year before, regardless of the higher duty, as customers took advantage of lower prices.

That increased pressure on the current account balance and limited the central bank's room for monetary easing.

The bank said the import restriction was designed to moderate domestic demand but that banks could supply jewellery exporters.

"We have good volumes in export business, we will concentrate on that now," said a dealer with a state-run bullion importing bank in Mumbai.

The actively traded contract for gold for June delivery on the Multi Commodity Exchange (MCX) fell to as low as 26,237 rupees on Wednesday, a level last seen on March 24, partially due to a stronger rupee.

(Editing by Prateek Chatterjee and Jane Baird)