Gold imports at second spot after crude

Written by Neha Pal | Neha Pal | New Delhi | Updated: Dec 13 2011, 08:46am hrs
Gold imports have soared to the second largest slot for India just after crude, on the back of soaring demand from the gold backed exchange traded funds. Despite gold prices hovering around Rs 29, 200 (per 10 gm) and a fall in demand for jewellery, the imports of the yellow metal stood at a record R2,15,000 crore, as per World Gold Council (WGC) data.

The surge has maintained despite the India government decision to raise import duty on gold to R300 per 10 gram from R200 in 2010-11.

India produces just 0.5% of its annual gold consumption. When FE spoke to analysts, they said banks account for more than 80% of the annual imported bullion traded in the wholesale and retail markets. In 2009, the RBI had bought around 200 tonnes from IMF due to market uncertainty and recession.

SMC global (one of Indias largest stock exchange brokers) said that the RBIs move to allow seven more banks including four associate banks of State Bank of India to import precious metals like gold has pushed up the demand. At present, 30 banks in India are allowed to import the precious metals.

According to RBIs data, banks like Axis Bank, HDFC Bank, Allahabad Bank, Standard Chartered Bank, ICICI Bank, Bank of Nova Scotia, Canara Bank, Kotak Mahindra Bank, Syndicate Bank and Union Bank of India are some institutions that are already allowed to import gold and silver.

The seven banks which were added to the list were South Indian Bank, State Bank of Bikaner, Karur Vysya, State Bank of Mysore, State Bank of Hyderabad, State Bank of Travancore and Punjab and Sind Bank.

Religare Commodities president Jayant Manglik had said that the addition of more banks to the list will further propel the demand for gold and increase the competition in the market as consumers will have a choice amongst the banks.

As per WGC estimates the per capita consumption of 1.2 billion Indian population is only 0.7% which is one-third to that of West Asia and almost half that of the US. It shows in the April-November period gold imports surged by 56% more from the corresponding period of last year. This makes Gold as the second biggest import for India after petroleum which accounted for $ 94.1 billion of imports in April- November.

Imports jumped 72% in 2010 to 959 tonne which makes India largest consumer and importer of gold and silver in the world. Indias gold imports rose 34.9% 553 tonne in the first half of 2011, according to the WGC.

Gold Backed Exchange Traded Funds (ETFs) is also pushing up the demand for gold. According to analysts, fund houses are offering different schemes for different classes of investors. Out of the 30 mutual fund companies in India, 10 mutual fund houses have come up with gold ETSs. This includes HDFC Gold Exchange Traded Fund, ICICI Prudential Gold Exchange traded fund, SBI Gold Exchange Traded Scheme, Religare Gold Exchange Traded Fund, Axis Gold ETF, Birla Sun Life Gold Exchange Traded Fund, gold Benchmark Exchange Traded Scheme (Gold BeEs), Reliance Gold Exchange Traded Fund-Dividend Payout Option and Quantum Gold Fund.

Rajan Venkatesh, MD, India bullion SocotiaMocatta (part of the Bank of Nova Scotia) said, Demand for gold imports are likely to reach 1,000 tonne due to growing investment demand which has also compensated the decline in the jewellery consumption. He further said that gold prices might touch $2,000 an ounce by March 2012 driven by global economic crisis.

With gold prices hovering around R29,212 per 10 grams, the demand for jewellery has come down to 464 as compared to 472 tonne but investment demand has gone up to 296 tonnes in first nine months of calendar year 2011. A WGC report stated that yoy gold demand in the third quarter was up by 15% in tonnes and 46% in value. In the third quarter of 2011, yoy gold demand is up 15% in tonne and 46% in value (US$) in November 2011.