Gold Imports by India Seen Climbing as Bullion Nears Bear Market

(April 4, 2013 - by Pratik Parija)

Gold imports by India, the world’s largest bullion buyer, may increase 31 percent this quarter after prices dropped to a 10-month low and festivals and weddings spur sales of jewelry, a trade group said.

Purchases may climb to 200 metric tons in the three months through June from 153 tons a year earlier, Bachhraj Bamalwa, a former chairman and member of the All India Gems & Jewelry Trade Federation, said in a phone interview today. Imports probably were 225 tons to 250 tons last quarter, compared with 228 tons a year earlier, he said.

Gold is nearing a bear market after 12 years of gains on concern that investors are seeking higher returns in other assets as the global economy recovers. That’s stoking demand among jewelers and traders in India even after the government tripled tax on gold imports since start of 2012 to moderate demand. UBS AG’s index of Indian physical gold demand “was well above average and one of the best days we’ve seen in months,” analyst Joni Teves said in a report today.

“Prices are attractive now which will definitely increase demand,” Bamalwa said. “The appetite for gold in India will not vanish overnight as demand for jewelry is part of our culture. The increase in import duties will not reduce demand.”

Gold for immediate delivery lost as much as 1.1 percent to $1,540.29 an ounce, the lowest level since May 30, and was at $1,542.86 at 3:28 p.m. in Mumbai. The metal has slumped 18.8 percent from its record close of $1,900.23 in September 2011, nearing the 20 percent that typically defines a bear market. Futures on the Multi Commodity Exchange of India Ltd. (MCX) have fallen for seven straight months, closing at 29,238 rupees per 10 grams yesterday, the lowest settlement price since July 19.

Investment Demand

Gold use in India may climb for the first time in three years in 2013 as rising incomes and inflation boost investment demand, according to Somasundaram P.R., managing director of the World Gold Council for India. Consumption may total 865 tons to 960 tons this year, compared with 864.2 tons in 2012, he said last month. The gain in imports will match the increase in demand, he said.

“Festivals and weddings in the next two months will increase demand,” Bamalwa said.

Gold is bought during marriages as part of bridal trousseau or gifted in the form of jewelry by relatives. The wedding season in India runs from November to December and from late March through early May.

Around 50 percent of the country’s population is under 25, with 15 million weddings estimated every year till 2020, equivalent to about 500 tons of fresh gold demand, according to Nilesh Mundra, head of investment strategy for private banking at ICICI Bank Ltd. (ICICIBC) Gold forms 30 percent to 50 percent of total marriage expenses, he said.