Gold demand is expected to remain in the range of 900-1,000 tonne this calendar year, compared with 975 tonne a year ago, Somasundaram told FE. He, however, didn't offer any precise forecast on imports in 2014, saying that official import data don't factor in supplies through illegal channel and, therefore, don't reflect the correct picture. But analysts say imports in this calendar year could hit at least 900 tonne in 2014, up 9% from last year.
India hardly produces any gold and depends on imports to cater to both domestic demand as well as exports after value addition. Usually, import volumes exceed the annual requirements, as jewellers also stock up for future needs.
What makes the case for an up-tick in imports in 2014 is that organised players depleted their inventories last year after the government and the central bank stepped in to choke imports, and they need to replenish stocks now, Somasundaram said. Moreover, demand in India, which was beaten by China as the largest gold consumer last year, rose 13% to 975 tonne in 2013, he added.
This is despite the fact that the government raised import duty on the precious metal three times to 10% from 4% in the beginning of last year and the central bank mandated that at least one-fifth of the imported gold be kept aside for re-exports, he added.
The RBI also directed that no fresh tranche of imports by a trader would be allowed until the 20% of the previous imported volume is exported after value addition.
Arguing that the fundamental factors that support gold demand in India including traditional appeal, elevated inflation and absence of more profitable investment tools haven't changed, he said while official measures choked supplies, they couldn't dampen demand last year. And the same situation is expected to continue this year as well, he added. The commerce ministry's recommendations to ease some rules to boost supplies will also help, if endorsed by the finance ministry.
Spot gold prices in the global market have gone up 9% in 2014, after the sharpest annual fall since 1981 last year. Weak US economic data, uncertainty in the euro zone, SDPR, the world's largest gold exchange-traded fund posting its biggest inflow since December 2013, and rising demand from China may support gold this year, said Prithviraj Kothari, MD at Riddisiddhi Bullions.