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India gold premiums soar as demand outstrips supply

Section: Daily Dispatches

By Biman Mukherji and Debiprasad Nayak
The Wall Street Journal
Tuesday, April 23, 2013

NEW DELHI -- Indian gold retailers are paying more in order to meet immediate demand, as customers scoop up every gold bar they can lay their hands on in the wake of a plunge in international prices.

Indian retailers say they are paying premiums of $8-$10 an ounce over the international gold price, which is around $1,425 a troy ounce. That's four or five times the premium retailers usually pay for imported gold during periods of peak demand in India, according to traders.

"We have not seen this kind of premium on gold imports in years," said Suresh Hundia, president emeritus of the Bombay Bullion Association.

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India, the world's biggest consumer of gold last year, imports most of the precious metal it needs. Designated banks and a few trading houses are paying $7-$8 an ounce more to get gold from international suppliers, and they are passing on that cost to Indian retailers, traders said.

The rush for gold began when international gold prices fell 4% on April 12. By April 16, gold for June delivery on the Comex exchange in New York reached $1,321.50 an ounce, the lowest price since Jan. 28, 2011.

Indians crowded jewelry shops and other retailers last week to lock in the lower prices before the start of the wedding season, which runs from the last week of April through June. Gold is traditionally given to brides as a wedding gift.

While prices have risen about $100 from the low, customers are still buying gold.

"Demand is so high that everyone wants delivery of bullion in one day," said a dealer with a multinational bullion-importing bank. "If some overseas supplier agrees to deliver to these impatient customers, then they obviously will charge a higher amount."

Kumar Jain, a partner at Umedmal Jewellers, which has a retail shop at Mumbai's Zaveri Bazar trading hub, said his company is paying about $8-$10 an ounce above global gold prices, but that isn't hurting business.

"Demand is huge and prices have crashed, so we are able to pass on the premiums to the customers, who don't mind paying a little more," Mr. Jain said.

Traders said mini gold bars, which weigh about 100 grams and are popular among small jewelers and bullion investors, have "disappeared" from the market after the price collapse.

"Most of the dealers have run out of stocks due to the surge in sales since last week," said Vijay Khemka, a partner at Ganpati Traders, a New Delhi-based bullion dealer. "Our sales have also increased by 20-30% over the last eight to 10 days."

Jewelers said they were restocking bullion ahead of what they anticipate will be a rise in demand during Akshaya Tritiya, a major gold-buying festival, which is celebrated May 13.

Although gold's availability may be limited in India, it isn't exactly depleted. Vasu Acharya, director at Parker Bullion, said dealers are sitting on as much as nine metric tons of gold that they imported before the selloff, unwilling to part with it at prices that would mean losses, especially when factoring in the 6% import tax, which is based on a price that was calculated before the commodity's price plummeted.

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