India Set to Boost Gold Imports

First increase seen in six quarters on lower bullion prices, festival prep

The largest importer of gold in the world, India, has been buying less of the precious metal over the last six quarters than usual. However, imports of gold look set to climb after a long drought, as domestic bullion prices have fallen and the festivals that boost gold fever gear up and give a lift to investor and consumer interest.

Bloomberg reported Friday that Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, said imports could rise to as much as 200 metric tons. In Q4 of 2011, World Gold Council data indicate that foreign buys of the metal were only at 157 metric tons. For this year’s Q3, according to Bamalwa, imports were probably as low as 170 tons, whereas in 2011 for the same period they totaled 205 tons.

If India starts boosting its gold imports again, that could support a global gold rally. Prices have risen 11% this year, for a twelfth straight year of increases. The price of bullion in India reached a record in September, but dropped about 3% in October thanks to the biggest monthly gain since January by the rupee against the dollar.

“The appreciation in the rupee has caused the gold price to correct from the record levels and this correction is seen as an opportunity by many to get into gold,” said Chirag Mehta in the report. Mehta, a fund manager at Quantum Asset Management Co., added, “With the festival season and marriage season starting now, demand will gain further momentum.”

Bamalwa said that demand for gold has increased over the last 10–15 days, signaling the possibility of better buying during the festival season than last year. In the report he said, “In the last three to four months, there was practically no demand for gold because of the high prices. There is a lot of latent demand, and we expect this festive season to be better.”

The religious festival season begins with Dussehra, on Oct. 24, and concludes with Diwali in November; gold purchases during the festivals are auspicious, with specific days considered particularly beneficial. The wedding season, another occasion for high gold demand, follows that.

Consumers and investors restrained their hunger for gold in the first half of 2012, stung by a higher import tax and a jewelers’ strike. World Gold Council figures showed that imports for the period dropped 42% to 340 tons. According to Bamalwa, the year’s purchases may show a decline for the first time in three years down to 600 tons, after India brought in a record of 969 tons in 2011.

“India should be a better buyer over the next two weeks from a seasonal perspective, but this remains highly contingent on the behavior of the rupee gold price,” said Edel Tully in the report. Tully, an analyst at UBS AG in London, added, “Indian imports are already 40% less than they were last year, and we understand inventories are generally light. Therefore, if the rupee behaves, fresh demand will also prompt restocking.”

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