Gold Prices To Drift Further By 5%

Gold prices were expected to drift further by over five per cent and maintain this ratio with the international prices following the government's decision to bring import of gold under open general licence (OGL).

The government's decision to allow banks and other agencies to import gold without special import licence (SIL) has left its earlier liberalisation for import of gold through non-resident Indians (NRIs) and SIL completely unviable due to the premiums, ML Damani, president, Bombay Bullion Association said yesterday. "We are demanding equal opportunity to all for the import of gold", he said.

He said the smuggling was greatly reduced due to the government's liberal import policy and the higher havala rate of about 8 per cent than the bank rate would further affect the smuggling of gold in the country.

Stewart Murray, chief executive of Gold Fields Minerals Services also, attributed downward trend in gold prices to sharp fall in international prices and the OGL, saying the government might have allowed import under OGL to increase the inflow in a bid to help put a lid on rupee slide.

Briefing newspersons in Mumbai, Murray said the premium needed to come down to 6 to 7 per cent in India and that meant the price was got to fall further.

Commenting on the central bank sales in the global markets, Murray ruled out any auction by the Swiss Bank, pointing to the announcement of the Swiss National Bank last friday of its intentions to relocate 1,400 tonnes of its gold reserves which pushed the panic buttons resulting in gold prices crashing further.

Auction of gold by the Central Bank of Switzerland could only be possible in 1999, he said, adding "to sell any gold, the swiss government will have to hold a referendum".

He said as against an yearly increase in supply of gold of 400 tonnes, this year only in the first six months the increase was to the tune of 600 tonnes due to selling of gold by various central banks.

Though many central banks were selling gold, there were many central banks which considered gold as an important component of their reserves and hence keep their gold reserves strong.

However, European countries would be viewed to shed some portion of their gold reserves due to the switchover to European Monetary Union (Emu), he said.