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Gold buying becomes frantic in India, strongest since 2008

Section: Daily Dispatches

Gold Rush Spooks Economy as Trade Deficit Surges to $17.8 Billion

By Dilasha Seth and Sutanuka Ghosal
The Times of India, Mumbai
Tuesday, May 14, 2013

India's gold rush spooked the economy again as frantic purchases in April widened the trade deficit to a disturbing $17.8 billion, but people queued up to buy even more coins and ornaments on an auspicious gold-buying festival on Monday, setting the stage for an even bigger gap between imports and exports. The sharp fall in gold prices last month unleashed pent-up demand in India, lifting the import bill for bullion to $7.5 billion in April, up from a relatively modest $3.5 billion in the same month a year ago.

Accelerating gold imports contribute to the current account deficit, which analysts say is one of the biggest concerns for the Indian economy. The government has tried to curb India's appetite for gold with import duties while the central bank has imposed restrictions on the import of the metal, but buyers don't care. They are actually rushing to buy before the authorities clamp down on gold.

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On Monday's Akshaya Trithiya festival, the demand was so high that some jewellers opened their shops at 7 am. People stood in queues for hours to buy coins, bars, and ornaments, hoisting sales to the brisk pace last seen in 2008 when gold prices were half of the current level.

The sudden surge in demand has prompted the World Gold Council to say India's imports this year will exceed earlier estimates of 865-965 tonnes, said the council's managing director, Somasundaram PR.

"Consumers are buying both coins and jewellery. Since coins can be bought on the spot, they are flying off the shelves quickly. Orders for jewellery are being placed which may be delivered at a later date," he said.

But C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, says April's surge was an aberration and demand would be lower in 2013-14. "Gold demand comes from jewellery and investment demand. The investment demand is largely driven by inflation, which is expected to be lower this year. April was an exception as gold prices saw a sudden drop, so importers imported more gold as they expected price to rise later. But current account deficit for the entire year will stay at around 4.7% of the GDP. We would have to be more careful on curbing imports through increasing duties further as it may lead to gold coming in through unofficial channels."

Monetary authorities are moving in to stem the tide. The Reserve Bank of India issued a circular on Monday saying: "The bulk of the gold imported by nominated banks is on consignment basis whereby nominated banks do not have to fund these stocks. To moderate the demand for gold for domestic use, it has been decided to restrict the import of gold on consignment basis by banks, only to meet the genuine needs of exporters of gold jewellery."

Jewellers are concerned. Suvankar Sen, MD of Kolkata-based Senco Gold, and Vinod Hayagriv, MD of Bangalore-based C Krishnaiah Chetty, said this would raise the price of gold in India. "The domestic supply will become costlier and we may end up paying high premium for obtaining gold. That will make gold costlier and may dampen the current upsurge in demand," said Sen.

Gold declined in domestic market in tandem with the moves in overseas markets. Both in MCX futures prices and NSEL spot prices are edging down by nearly 1% to Rs 26,780 per 10 gm.

Jewellers say they haven't seen such demand since 2008 when the price of the yellow metal was around Rs 12,500 per 10 gm. "We had seen this hectic buying in 2008 just before the global economy went into a recession mode. In Chennai, shops remained open on Sunday as well. We had opened the shops at 7 am, " said Anantha Padmanabhan, managing director of Chennai-based Nac Jewellers.

Sales were highest in southern India. "For consumers in north and western India, Dhanteras and Dussehra are the two days when gold buying is most. However, we are seeing a good demand for gold coins and jewellers in Mumbai have opened a special counter for gold coins," said Samir Sagar, director of Mumbai-based Manubhai Jewellers. Added Rajiv Popley, director of Popley & Sons: "This year, Akshaya Tritiya saw a 25% rise in sales compared with last year."

Adarsh V Chandrarkar, a shop owner in Bangalore, drove down around 9 am to a Rajesh Exports-owned Shubh Jeweller retail shop in Kumara Park area to buy 45 gm of gold jewellery. "I wanted to buy gold early morning as I knew there will be a long queue in the evening. Akshaya Tritiya is a very auspicious day to buy gold and we believe if we buy it on this day then there will be prosperity throughtout the year."

Like Chandrarkar, many in south India joined this gold rush and there were long queues in front of jewellery stores even after sunset. For instance, Rajeshwari CN, a Chennai homemaker, waited for more than an hour before she could buy her 30 gm necklace. A delighted Rajeshwari said: "I didn't mind standing in the queue. I have got my necklace at the right price."

The spot price of 22-carat gold in south India on Monday was around Rs 25,430 per 10 gm while 24-carat gold was around Rs 27,400 per 10 gm. Haresh Soni, chairman, All India Gem & Jewellery Trade Federation, said demand had risen up to 30%.

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