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Why official gold supply is drying up further

April 17, 2014 08:47 IST

Why official gold supply is drying up further

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Rajesh Bhayani in Mumbai

The premium for getting spot delivery for gold in the Indian market jumped to $70 an ounce from $35 a couple of days earlier, with a sudden scarcity.

While the trade is facing a scarcity of gold in official channels due to lower imports by private banks, the increase in demand in the unofficial market resulted in the hawala market premium crossing four per cent from 2.75-3 per cent a few days earlier and 2-2.25 per cent a month before, said a source in the Kolkata market, where smuggled gold inflow is said to be higher.

Recently, gold spot premiums were on a downward trajectory due to permission to five private banks to import gold.

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Image: A goldsmith shop owner displays gold pieces at a gold market.
Photographs: Azad Lashkari/Reuters
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However as the new financial year had begun, a private bank bullion desk official said quarterly and yearly targets were being fixed, which is why their import was limited.

Gold prices in India were unaffected by the sudden sharp fall on Tuesday in the international market.

In India, apart from the 10.3 per cent import duty, the premium for physical delivery is also counted and when the prices were falling on Tuesday evening Indian time, the premiums here were rising.

On Tuesday, international gold prices fell by three per cent in two hours.

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Image: Gold prices in India were unaffected by the sudden sharp fall on Tuesday in the international market.
Photographs: Reuters
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Why official gold supply is drying up further

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In the spot market here, the jump in premium to around $70 an ounce had continued on Wednesday.

This artificially high price has not allowed buyers of gold to get the benefit of price correction.

Trade sources say there is a shortage in the official channels with the rise in seasonal demand due to Akshay Tritiya, coming on May 2.

The price in the spot market close on Wednesday at Rs 29,710 per 10g, compared to Tuesday’s close of Rs 29,680.

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Image: The price of gold has come down to under Rs 29,000 per 10 grams, compared with Rs 31,000 a fortnight ago.
Photographs: Babu/Reuters

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Rajiv Popley, director of Popley & Sons, said: “High premium, along with shortage of gold, is a big hurdle.

“We have orders for meeting demand for Akshay Tritiya but gold is not available. The scarcity in official channels creates unfair advantage for unorganised players.”

He said for their jewellery business in Dubai, they get gold by paying a delivery premium of only $1.2 an ounce, compared to $70 in India.

After several curbs, Indian market has fallen prey to a cartel-like situation, where only a few are importing.

The result is scarcity. 

Trade circles say any relaxation in import curbs is likely only after Akshay Tritiya and a new government in place.

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Image: After several curbs, Indian market has fallen prey to a cartel-like situation, where only a few are importing.
Photographs: Ajay Verma/Reuters
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