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Drop In Gold Imports To Lower India’s Substantial CAD In June

By Kitco News
Tuesday June 18, 2013 3:07 PM

(Kitco News) - With new import restrictions and higher duties in place, analysts are expecting gold demand in India to drop in June.

Barclays and Standard Chartered Bank are expecting to see significant drops in gold imports as the Indian government and Reserve Bank of India try to lower the country’s massive current account deficit.

According to news reports, in May, the country’s trade deficit widened to $20.14 billion from $17.8 billion in April, a seven-month high, as gold imports remained strong. The data showed that gold and silver imports jumped by 90% compared to last year; although high, precious metals imports were lower than April’s yearly increase of 198%.

However, analysts at Standard Chartered Bank expect that the trade deficit to fall to $15 billion and gold imports to fall between $5 billion to $4 billion from the $8 billion recorded in May.

In research note, analysts from Barclays Capital said that the May report could be a near-term high for the trade deficit.

"We expect gold demand and, hence, imports to be significantly lower in June, and possibly remain low in coming months," Barclays Capital said.

It is still no surprise that May’s trade data still showed deficits as the central bank and the government didn’t start to curb gold imports until early and mid-May.

Earlier this month, the government increased the duty on gold imports to 8% from 6%. Before that in May, the central bank announced various restrictions on gold imports on a consignment basis and restricted banks from extending loans against gold exchange-traded funds and units of gold mutual funds.

Analysts are also expecting the weak rupee to drag down gold imports. On Monday the central bank had to leave rates unchanged, despite improving inflation expectations. As of 2:29 p.m. EDT the U.S. dollar was trading at 58.838 rupees, which is just slightly lower than the all time high of 58.978 set last week.

In a recent interview with Kitco News, Neil Mellor, currency strategist at the Bank of New York Mellon, said that he expects the rupee to continue to decline. He added the country’s current-account deficit and weakening economy does not provide great prospects for the currency.

By Neils Christensen, of Kitco News nchristensen@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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