India's Q4 gold imports to jump as investors seek safer bets than stocks

GOLD - MUMBAI. India's gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee at the same time traditional buying will rise during the festival season, said multiple sources involved in the market.

Increased buying by the world's second-biggest gold consumer would support global prices that have traded roughly near $1,200 an ounce since late August, but also widen India's trade deficit and add to pressure on the Indian rupee, which fell to a record low on Wednesday.

In the fourth quarter of 2018, gold imports could rise 9 percent from a year ago to 250 tonnes, said Bachhraj Bamalwa, a bullion dealer based in Kolkata who was formerly the Chairman of the All India Gems and Jewellery Trade Federation.

"In the December quarter, festival demand would be robust. Investment demand is also gaining traction," said Bamalwa.

Demand for gold usually strengthens at the end of the year on purchases for the traditional wedding season and major festivals including Diwali and Dussehra, when bullion buying is considered auspicious.

In the fourth quarter of 2017, India imported 229.6 tonnes of gold, according to metals consultancy GFMS.

Gold investment demand may rise as falling stock markets have prompted investors to diversify their portfolios, Bamalwa said.

India's NSE equity index has fallen 7 percent from a record peak in August, while local gold futures have risen 6 percent since the recent low hit in mid-August.

"Rupee is consistently falling and we don't know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold," said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in Chennai.

The rupee has fallen 13 percent in 2018, increasing the price for dollar-denominated bullion in rupee terms even as gold has dropped 7.6 percent this year.

Regaining Lustre

Investment demand for gold had dwindled since 2014 as India's equity markets rallied on optimism that Prime Minister Narendra Modi would rejuvenate the economy. An appreciating rupee also cut into demand at the time.

"Stocks have doubled in four years, but now investors think there is limited room for upside. So they are moving back to gold," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.

Mangesh Parekh, an apparel merchant, bought two gold coins, each weighing 10 grams, last week.

"I have invested in stocks through mutual funds. Now since stocks are falling, I am parking a small amount in gold," Parekh said.

Indians usually buy gold as jewellery, but investors prefer gold bars and coins to save on jewellery making charges.

India's government has, in the past, raised import taxes on gold to bolster the rupee since it is seen as a non-essential commodity.

But that may not be a viable option as a hike in import duties could boost gold smuggling and black market sales, said Harshad Ajmera, a gold wholesaler in Kolkata.

Smugglers brought in about 120 tonnes of gold in 2017, with nearly the same amount expected in 2018 unless the government reduces import taxes, the World Gold Council estimated.

In 2013 India raised gold import taxes to a record 10 percent, while in 2017 it added a 3 percent sales tax.

For now, India's finance ministry does not favour raising the tax but investors buying gold currently are expecting a better return if a duty is levied later, said the head of a bullion importing bank in Mumbai.

"If the government raises import tax by 3 percent as speculated, returns will go up by 3 percent. Gold becomes more attractive for investors," he said.