By Paul Ploumis 01 Jul 2015 Last updated at 08:02:06 GMT
NEW DELHI (Scrap Monster): The gold premiums in India have given way to discounts. According to trade sources, bullion dealers are selling gold at a discount of $7 to $8 per ounce to retail customers and jewellery manufacturers, in an attempt to raise cash to fulfill bank payments, which otherwise would attract heavy penalties.
The demand for gold with dealers has witnessed sharp decline during recent months. The supply into the system has remained healthy from other sources such as smuggled gold and gold supplied by domestic refiners, though in small quantities. In addition, jewellery imports into the country have risen sharply, thereby lowering the demand for dealer gold. The bullion dealers in the country are reportedly sitting on huge inventory levels. On the other hand, demand has slowed down significantly, forcing them to offer gold at discount rates.
The prevailing Free Trade Agreements with certain countries allows jewellery manufacturers and exporters to import gold jewellery at 1% import duty. This jewellery are later melted and used for making new jewellery. The total cost is said to be lower when compared with the 10% import duty on gold. Smuggled gold is also cheaper since it evades duty payment. The lower import duty of gold dore makes it more economical for domestic refineries to process them, rather than purchasing gold from bullion dealers. The imported value of gold is also higher than gold extracted from scrap jewellery.
According to trade sources, Indian gold market looks abundantly supplied at the moment. Bullion dealers had stocked huge quantities of gold in anticipation of wedding season demand. However, lower-than-estimated demand has led to supply surplus. As a result, gold imports during June are likely to see sharp decline from higher levels recorded during the past several months. The country’s gold imports had touched 269 tonnes during March to May this year, significantly higher when compared with the imports of 177.48 tonnes during the corresponding three-month period in 2014.
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