The latest research report published by HDFC Securities- one of the leading financial service providers, has predicted immense gold supply constraints in India during the second half of the current fiscal year. According to the report, gold availability may continue to suffer with no signs of easing of gold import norms in the near future.
According to the report, the 20%-30% lower sales witnessed during current festive season was primarily due to a combination of slowdown in discretionary spends and higher gold premiums. The strict restrictions on gold imports had taken gold premiums in the country to record high during the festive season. Further, restriction on import of gold coins has also impacted investment demand. As a result, overall gold demand is likely to be muted on a YoY basis.
The HDFC Securities Institutional Research estimates the gold demand to touch 415 tons during H2 FY14, assuming 20% year-on-year decline from FY13. The report pegs the total gold supply at 280 tons-150 tons from official gold imports, 120 tons from supply of recycled gold and 10 tons from others. This implies a shortage of 135 tons, which will have to be met through unofficial sources.
The report also states that although gold smuggling has picked up significantly post July-13, it is still unclear whether this will be enough to meet the industry's gold requirements in H2 FY14. Even under a scenario of higher than expected gold demand, the supply constraints may be exacerbated with an increased demand for gold.