- Created: Thursday, 21 August 2014 18:44
Gold premium in Indian market will amount between $3 and $4 additionally to prices of the precious metal in London, where the world's gold benchmark price declares, Head of India's largest gold refinery said on August 21.
On yearly comparison it is a positive sign as in the last year premiums on Indian gold doubled because of rising demand. In the Financial Year 2014-15, gold's demand moderated over the year bringing down the overall price of the commodity in the market. The credit of weakening gold demand in Indian market is attributing to the import restrictions which are going to continue in the current fiscal.
India faced a widening trade deficit problem which continued over the last few years as the country stood as the biggest importer of gold. High trade deficit posed a serious problem and threatened the economic growth of the country, therefore Indian government along with the central banking authority RBI imposed 10 percent charge on import of gold.
Along with an increase in import duty, another measure to curb down trade deficit is compulsory export of one fifth of accumulated bullion imports in the trade. India imports 70 percent of oil from the middle east which tops the list of importers before gold which is useful as the world's currency.
Such strict actions on inflated the price of gold is making the commodity an unattractive investment as the premiums climbed to $ 160 per ounce. Premium refers to the difference in global benchmarked price of a commodity or stock under the local prices of the commodity in the country. Premiums are representative of demand and supply of a country's market.
Managing Director of the top Indian refiner, Rajesh Khosla said, "A decline in demand is citing a fall in premiums in the yellow metal price to average from $3 to $4 per ounce over the world's benchmark price, which is more than 50 percent reduction in price from last year's premium, which stood between $7 and $10."
Khosla supported the restriction and quoted, "Quantity of gold imports restrictions is going to stay." He explained that India is a country where demand for gold is never-ending and therefore, it is essential to control it. The reason behind importance of restriction in India is the country's insufficiency to provide funds for allowing unlimited free import of gold.
Alliance of India's MMTC Ltd and Swiss refiner PAMP gave birth to MMTC-PAMP, a gold refinery company which closed down its functioning in August 2013 after the Indian government and RBI launched policy of controlling gold imports.
Looking at the concern of refineries in India, the government alloted special licenses to these companies to buy in 15 percent of licensed quantity subscribed to them, i.e. 150 Kilograms.
The World Gold Council said, "Continuation of import restrictions means that gold demand in India will amount to 850-950 tonnes in FY 14-15, bringing down previous year's record of 974.8 tonnes."