With more exports, Indian gold traders drive up domestic prices


By Rajesh Bhayani
Business Standard, Mumbai
Monday, October 28, 2013


Gold traders and some big exporters seem to have come up together to form a cartel to keep domestic market gold prices artificially higher.

They ensure this by diverting more gold for exports and so the domestic market continues to starve of gold amidst controls on imports.

This has resulted in premiums for physical delivery of yellow metal quoting as high as $100 per ounce, which works out to Rs.1800-2000 per 10 gram. While spot gold is quoting at $1,350 per ounce in international markets, in the Indian market gold including taxes is sold at around $1,600 per ounce. Premiums so charged are taken by the bullion dealer who sells gold and importing banks.

The premium a month ago was around $40 per ounce. The premiums are calculated over landed cost of imports.

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Industry sources said that in last two quarters, exports of gold jewellery in quantity have been in the range of 35-40 tons per quarter. However, in the last quarter, July to September, official imports of gold were 62 tons. Out of this 35 tons come the exports. "At a time when gold imports are drying up, diverting gold only for exports will aggravate the situation," said a Mumbai jeweler.

There is also a missing link as monthly jewellery of 12-15 tons of gold is being exported and in August and September total official imports of gold were 15 tons, from where the additional gold for exports was made available. Several theories are being floated. One of them is smuggled gold was diverted for exports. An official of the jewellery export promotion body said that direct gold imports were taking place in the export zones, which was converted to jewellery and exported.

There is another trend that is emerging where some big exporters are selling their exports to third parties at a premiums. Umesh Parekh, managing director, Shree Ganesh Jewellery House, said, "Exporters are selling exports, which is allowed to third parties, and charging a premium of 1.5 to 2 percent on this." The premium works out to $15-20 per ounce, which is also being passed on to the consumers of the domestic market for getting physical delivery.

Buyers of the exports are jewelers who want to be eligible for importing gold needed for domestic consumption. However, stricter norms have not helped them to import gold needed for local consumption so far at least in the last few months. Till gold import norms are liberalized, consumers would have to keep paying high prices for gold.

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