Gold in India Jumps Most in 10 Months as Jaitley Keeps Curbs

Jul 10, 2014 7:49 am ET

(Updates prices in second paragraph.)

July 10 (Bloomberg) -- Gold prices in India climbed the most since September after Finance Minister Arun Jaitley kept curbs on imports in the annual budget, limiting supply and potentially boosting premiums during the festival season.

Futures on the Multi Commodity Exchange of India Ltd. advanced as much as 3.5 percent to 28,580 rupees per 10 grams ($476), the highest level since May 15, and traded at 28,556 rupees at 5:01 p.m. in Mumbai. Prices are little changed this year as the rupee rallied, while gold for immediate delivery in London has increased 12 percent.

Jaitley kept the import tax at 10 percent and maintained the rule requiring shippers to supply 20 percent of their cargo to jewelers for re-export, defying industry expectations that the controls would be relaxed. Jewelry retailers had sought a reduction in the levy to 2 percent, said Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation.

“Imports will be less and there will not be much demand as prices and premiums will increase,” Bamalwa said by phone from Kolkata, earlier known as Calcutta, today. “This is very unfortunate for the industry.”

India, which represented about 25 percent of global demand in 2013, raised the tax three times last year and linked purchases to re-exports to contain a record current-account deficit and stem a decline in the currency. The steps helped narrow the deficit to $32.4 billion in the financial year ended March 31, from $87.8 billion a year earlier, the Reserve Bank of India said May 26. The rupee rallied about 13 percent from a record low of 68.845 against the dollar in August.

Jewelers Tumble

“The government should make changes in its trade policies soon and also tweak” the re-export rule, known as 80:20 policy, Mehul Choksi, chairman of Gitanjali Gems Ltd., India’s biggest jeweler by revenue, said by phone from Mumbai.

Shares of jewelry retailers fell in Mumbai trading after the budget announcement. Titan Co. tumbled 6 percent to 327.20 rupees, Gitanjali slid 5.8 percent to 81.90 rupees and Tribhovandas Bhimji Zaveri Ltd. declined 5.8 percent to 175.75 rupees.

The fees that jewelers pay importers and bankers to buy gold had dropped to $10 an ounce over the London cash price yesterday from $25 last week in anticipation of a reduction in curbs, Bamalwa said. They may rebound and spur smuggling, he said. Imports dropped to 670.4 tons in the year ended March 31 from 1,014 tons the previous year, the Commerce Ministry says.

“Prices will shoot up because everyone thought that the duty would be cut to 2 percent or 4 percent and they were waiting to stock up,” said Prithviraj Kothari, vice president of the India Bullion and Jewellers Association Ltd. “Premiums could increase to $30 in the next month,” he said by phone.