Mumbai, Dec. 29: After a 30 per cent dip this year, gold prices are expected to fall further, at least in the first half.
However, the policy stance of the Centre and the RBI along with the value of the rupee will determine the extent to which Indian consumers will benefit from the softening of prices.
Imports have sharply declined over the past few months as both the government and the apex bank targeted the precious metal to bring down the country’s current account deficit. The import duty was hiked and restrictions — which required all entities to export at least 20 per cent of imports — were imposed.
This led to domestic gold being sold at a premium of between $70 and $140 per ounce over international prices. Though the restrictions resulted in a significant fall in imports, they have also led to a rise in smuggling.
Gold’s 12-year rally came to an end in 2013 as a host of factors dented its image as a safe haven asset. It is now trading at around $1,200 per ounce, lower than the last year’s level of around $1,600 per ounce and the record high of over $1,900 an ounce in 2011.
In the domestic markets, it is now being quoted at Rs 29,545 per 10 gram in Calcutta (99.9 purity) after hitting a peak of over Rs 33,700 during the year.
International prices, initially, came under pressure when Cyprus announced that it would be selling its gold reserves. It was then hit by the US Federal Reserve’s plans to trim its bond-buying programme, which led to investors withdrawing their money from the yellow metal.
Kunal Soni, research analyst at Emkay Commotrade, said international prices might hit $1,000 per ounce during the first half. He expects domestic prices to be around Rs 28,500 per 10 gram by March.
He added that the precious metal might regain some of its composure in the second half of 2014. “One cannot ignore the fact that the lustre of gold as a safe haven instrument will not go away that easily. By the end of 2014, one could see the international price rallying up to $1,400-$1,500 per ounce,” he told The Telegraph.
According to observers, much will depend on whether the RBI and the Centre will reverse some of the steps introduced to clamp down on imports prompted by lower CAD this fiscal. The removal of the curbs is expected to bring down the premium over international prices.
Experts argue that despite the restrictions and the premium, latent demand among domestic consumers remains strong.
According to Suvankar Sen, senior executive director at Senco Gold, though the demand environment has remained challenging over the past three months, prices could see an uptick in January-February.
Sen expects domestic prices to hover between Rs 28,000 and Rs 30,000 per 10 gram in 2014, subject to conditions such as the appreciation of the rupee.