Summary: India’s gold imports are projected to plummet by more than 90% in March, marking the lowest levels since the COVID-19 pandemic began. This decline is attributed to banks reducing imports following a surge in gold prices, dampening demand. The decrease in imports may help narrow India’s trade deficit and support the national currency.
Key Points:
- Sharp Decline in Gold Imports: Anticipated to drop by over 90% compared to the previous month, reaching the lowest levels since the pandemic outbreak.
- Reasons Behind the Decline: Banks have scaled back imports due to record-high gold prices, dissuading demand from jewellers. Domestic prices soared to unprecedented levels, prompting minimal purchases even during the typically strong gold-demand month of March.
- Economic Implications: The reduction in imports could potentially aid India in managing its trade deficit and provide support to the rupee, while also impacting the gold refining industry due to economic unviability.
India’s gold imports are anticipated to plummet by over 90% in March compared to the previous month, marking the lowest level since the onset of the COVID-19 pandemic. This significant decline is attributed to banks slashing imports in response to surging prices, which dampened demand, according to disclosures made by a government official and two bank dealers to Reuters.
The reduced imports from India, the second-largest consumer of gold globally, could potentially curb the rally in global gold prices. Earlier this month, global prices reached a record high amid expectations of interest rate cuts by the Federal Reserve.
The decline in imports is poised to have multifaceted effects, including potentially aiding India in narrowing its trade deficit and bolstering the rupee. Sources suggest that India’s gold imports for March are estimated to range between 10 to 11 metric tons, a stark decrease from the 110 metric tons recorded in February. The unnamed government official remarked that this anticipated downturn would mark the lowest level since the pandemic outbreak.
He further disclosed, “A negligible quantity of gold is being cleared from customs this month after paying duty. There has been a sharp drop in gold imports compared to last month.”
Mumbai-based bullion dealers from two leading gold-importing banks corroborated this assessment, citing weak demand as the primary reason behind their minimal gold imports for March. One dealer emphasized, “Jewellers weren’t buying even with a discount exceeding $35 per ounce. No reason to import the metal at a record high price and wait for demand.”
Domestic gold prices in India soared to a record 66,943 rupees per 10 grams earlier in March, compelling dealers to offer discounts of about $38 per ounce over official domestic prices, the highest since March 2023. Typically, March witnesses robust gold demand as jewellers stock up for the wedding season, a period where gold holds significant cultural importance in India. However, this year, the high prices have deterred purchases, with some customers resorting to exchanging old jewellery for new.
Harshad Ajmera, proprietor of JJ Gold House, a wholesaler based in Kolkata, noted that refiners have nearly halted imports of gold dore, a semi-pure alloy, due to their inability to provide substantial discounts. He highlighted the discrepancy in import taxes between refined gold and gold dore, making refining economically unfeasible.
The overarching impact of the diminished gold imports is expected to reverberate through India’s economy, potentially offering relief in trade deficit management and providing support to the national currency.