Feb gold imports seen at lowest since 2013

Rising prices, hopes of cut in import duty keep buyers away; could dent rally in bullion prices

India's overseas gold purchases are likely to hit a more than two-year low in February as rising prices and hopes of a cut in import duty keep buyers away.

Lower purchases by the world's second-biggest consumer could dent the current rally in global bullion prices but it will be relief for a government struggling to curb the gold import bill.

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The reason for lower imports include local prices quoting at up to a 3 per cent discount to international prices. Domestic prices are hovering around Rs 28,500-29,000 per 10 gm due to a weak rupee.

Dealers in many Indian markets are offering record high discounts to the spot benchmark price to lure buyers, but there are no takers.

India's imports of the metal are expected to drop to 25 tonnes in February, according to a median of estimates from five industry participants, including bank dealers and traders. That would be about 67 per cent below the month-ago level and the lowest since September 2013, when arrivals were hit by a government mandate to export a fifth of all gold imports.

The spot price in Mumbai on Tuesday closed Rs 220 higher at Rs 28,720 due to a strong overseas market. In the international market gold was quoting around $1,217 per oz.

"Banks and trading agencies have scaled down imports. They are being forced to offer heavy discounts to global prices to clear inventory," said Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation.

Spot gold prices hit a one-year peak of $1,260.60 an oz this month amid volatile financial markets and are currently at $1,217. Prices have risen 15 per cent over two months, their biggest such rally since August 2011.

Jewellers and retail consumers were delaying purchases in the hope prices would correct and that the government would cut the import duty by four percentage points in this month's budget, said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS.

Some traders were also seen buying in the spot market and selling in MCX April futures, which were quoting at a premium to the spot price.

If the duty is cut in the budget, the discounts might end as heldover buying will resume. If there is no cut futures prices will climb, else sellers in futures will tender delivery on maturity.