A myriad of factors are behind the present record discount for physical gold purchases in the world's number two consuming nation India, including government policy and a shift in consumer purchasing power/patterns, sources said over the weekend at an industry event in Agra, India.
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The inaugural Bullion Federation conference set out to tackle issues facing the country's gold industry, with ministers and businessmen coming together to tackle various hurdles.
Bullion Federation secretary Haresh Acharya, also head of gold trade at Parker Bullion based in Ahmedabad, told S&P Global Platts that he is feeling very positive about ongoing discussions with the country's government.
Acharya is one of the founding members of the federation and is working hard to improve business conditions.
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The Platts India 995 assessment has averaged minus $22/oz in 2016 so far, with the assessment at the deepest discount of minus $65/oz against dollar spot for parts of July.
There has been some modest improvement, or at least an easing in the discount, as the dollar price has come off the boil, but this has done little to spur demand.
PGPI 995 was assessed at minus $25/oz on July 22, from minus $40/oz July 21.
The July monthly average now sits at minus $51.67/oz.
On the sidelines of the event, all participants agreed that this is the worst phase in living memory, something Platts has been reporting for many months.
The Bullion Federation's key request from the government is to reduce the refined bullion import duty to 6% from 10%.
There are hopes by some that this could happen as early as August, although not all are convinced.
"I don't think so, why would the government change anything?" said one broker in New Delhi.
One senior banker told Platts that a reduction would be helpful but he believes that the industry is facing much bigger change, a shift that will see imports of bullion reducing in coming years to a point where they average around 300-400 mt/year.
Traditionally India is a 800-900 mt/year import market, with virtually no mine-supply in the country.
Indian gold bar imports fell 46% in June to 26 mt, from 50.1 mt in May, customs data showed earlier this month.
Imports were down 40% year on year, from 44.6 mt in June 2015, to their lowest level since March. India has shipped in around 130 mt so far in 2016.
Logistics sources talked of packages as small as 17 kg being transported, levels that would have been laughed at previously.
"It's crazy how small the amounts moving are," said one senior logistics source on the sidelines of the event.
A senior banker in London challenged anyone that is making money in India at the moment, "you find me someone, it's impossible."
Another logistics source said that in previous years, one could track Indian demand against seasonal festivals and monsoon. However, he added that this year, there is no rhyme nor reason to shipments: be it size, timing or destination.
Speaking on a panel moderated by Platts, Brinks director of air courier in Switzerland Lars Johansson, said that he is happy with the development of new bonded warehouses in Chennai and New Delhi.
He added that the new warehouses could be a "game changer" for the domestic market, as it would mean that metal could be shipped in without being assigned to specific banks or other parties. Consignment trade is very typical in India. The new warehouses would increase flexibility of trade in bullion, in Johansson's view.
The senior banker said that another factor behind India's changing bullion business is the fact that the new generation has less affinity with gold and is willing to melt down certain jewelry items to have fabricated into new, more modern designs.
This view was shared by many at the conference. One jeweler who works in the scrap business agreed, saying that he is seeing more and more younger Indians bringing in jewelry to be melted into new products.
The government has being trying its hardest in recent years to stem the country's lust for bullion, a none-yielding asset that operates largely on a cash basis.
This has seemingly worked, and the current account deficit is no longer the issue it was, helped also by a lower oil price. Oil and gold are the country's two biggest imports.
Bullion Federation secretary Acharya said that the main point is that the industry has to work with the government in order for change to be successful, he said that he would like to see the gold business move to a cashless one in coming years.
However, some feel that is a big demand especially for smaller operations and buyers living in rural areas.
Some questioned if India is losing its relevance in the global bullion business, in response an international banker said he didn't think so.
"We are seeing the Indian bullion business change, increasing refining capacity and new products. I think the deep discount will start to ease, and conditions will improve," he said, saying that one measure that needs to be taken by the government is to allow exports of gold.
Smuggling was another topic of conversation, with many complaining that it is one of the main reasons for the current steep discount.
However, others said that smuggling has always been a factor in the Indian market and that it shouldn't be seen as the primary cause for the current dire trade conditions. Nearly all traders and bankers said that they have done zero business in the past five-months.
"Policy changes are hard to keep up with, difficult to adjust to. A discount ranging between $30/oz and $100/oz is killing the market," said Prithviraj Kothari, director of RSBL.
He said that he would like to see the import duty on refined bullion cut to zero in order to deter smuggling and erase the discount.
Most said a reduction to 6% would be ample to start the process of kick-starting the painful market conditions dragging on the Indian market.
"If this continues for much longer more people will be going out of business, even the bigger guys," said another banker.
--Ben Kilbey, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com