Gold premiums in India may go through the roof by Diwali

The fees paid by jewelers to banks and other importers reached new heights as the fresh central bank curbs limited the supply of gold in India. The gold premiums jumped to more than double during the week, according to recent data released by the country’s trade body.

The gold imports, which stood high at 162 tonnes during the month of May, had plunged by 81% to reach nearly 31.5 tonnes during June. Gold premiums, which were as low as $4 per troy ounce during the last week have now shot up to levels of $10 per ounce over the London Gold Market cash price.

The new Reserve Bank of India (RBI) restriction to set aside 20% of the imported gold for re-exports is feared to limit supplies of gold to jewelers. On the contrary, demand for the yellow metal is expected to go high with better than expected monsoon promising a boost to rural incomes. Added to that are the wedding season and festivals like Diwali coming up in November.

The All India Gems and Jewellery Trade Federation (GJF) called for a revision of the 20% re-export criterion. The international market is not favorable for exports. This gold can well be utilized to meet the raw material shortage during festive season.

As supply becomes restricted and demand goes high, the gold premiums are expected to shoot up. The shortage of gold in the local market may push premiums as high as $25-$30 ounce by the time of Diwali in November.

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