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Indian gold market eyes return to price parity as early next week

Highlights

A growing number of Indian gold dealers expect the local price paid for gold -- which has been at a discount to the international spot price nearly all year -- to return to parity in the near term, sources said Thursday.

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The discount paid by local dealers and traders has been reported as low as $10/oz this week, with some reporting single-digit discounts as demand starts to pick up in the run-up to the Indian wedding and festival season in the fourth quarter.

The discount was as high as $75-100/oz as recently as July when gold jumped to two-year highs above $1,375/oz and with demand in India typically low in the summer months.

In rupee terms, gold hit a three-year high in July above INR 92,000/oz.

Article Continues below...



"Inquiries are increasing and volumes sold are picking up, but remain limited," said a dealer in Ahmedabad who quoted discounts as low as $7-10/oz this week in the south of the country, which has picked up faster than the likes of Ahmedabad, Delhi and Mumbai.

"We are expecting parity in the next 7-10 days, as business gradually improves," he said.

A number of businesses were closed this week for the Eid holidays, with markets officially shut Tuesday.

GOLD STOCKPILE

Large stocks of gold were said to have been built up following a long-running dispute with the government over taxation and subsidies that saw a 42-day nationwide jewelers strike in March and April which brought most of the market to a standstill.

One Indian trader said recently gold imports could be zero for the rest of the year until the excess stock is sold. Latest Indian customs data showed 26 mt of gold imports in August, down from 145 mt a year earlier.

The gold price in India rose to parity with the international market briefly in May following the end of the strike, but quickly returned to a discount.

Previously this year, it had only been in positive territory for a matter of days, in early January.

Hopes now are pinned on the traditional pick-up in demand during the fourth quarter to turn around the industry's fortunes.

Weddings around the festivals of Delhi and Dhanteras in October and November typically see strong demand for gold jewelry and, possibly more importantly, this year's monsoon looks set to end a tough couple of years for farmers, who account for the bulk of buying.

The rural population accounts for more than half of India's jewellery demand, according to the World Gold Council. So, any difficulty in this sector has a material impact on demand.

"Two consecutive years of deficient monsoon rainfalls have taken their toll on rural incomes," the WGC said in a report in August.

Heavy rain at the start of the monsoon season has indicated it could be a much better year for the country's farmers.

SMUGGLED GOLD

A crackdown on gold smuggling has been well received by the industry.

Haresh Acharya, secretary of the Bullion Federation of India, said recently the Directorate of Revenue Intelligence had "beefed up security checks" and increased its gold seizures after the industry raised the issue with the finance ministry.

"It has started to make a difference and has helped discounts to fall to around 1% [of the spot price]," Acharya said.

The World Gold Council has estimated as much as 160-200 mt of smuggled gold reaches India each year.

--George King Cassell, george.king.cassell@spglobal.com
--Edited by Dan Lalor, daniel.lalor@spglobal.com