High Prices & New Import Rules Push India's Gold Demand To Dubai & Singapore

The DOLLAR PRICE of gold briefly jumped back above $1370 per ounce Tuesday lunchtime in London, before drifting lower as world stock markets fell hard with commodities.

Reversing all of an earlier 1.2% drop – which analysts had called "profit taking" – spot gold prices spiked less sharply for non-Dollar investors as both Sterling and the Euro jumped to two-month highs.

Major government debt prices crept up, nudging bond yields lower from Monday's new multi-month highs ahead of Wednesday's release of minutes from the US Federal Reserve's latest policy meeting.

"The gold price is holding up well despite the US 10-year government bond yield moving [higher] from the start of last week," says a note from bullion dealers Standard Bank.

"This is encouraging."

Gold prices "have been rising within an upward sloping channel for a month," says a technical note from Société Générale.

"Yesterday's close...suggest[s] gold should pause at $1347."

"We feel that there's at least a technical bounce here" in gold prices, J.P.Morgan analyst John Bridges told CNBC on Monday.

"If you're still uncertain about whether the financial crisis is truly over, then having some gold in the portfolio makes a lot of sense."

Following a report by Reuters meantime, a note from London bullion market maker HSBC adds that gold prices could also "find support from optimism that India's bullion imports may resume."

India last week clarified its latest gold import restrictions, encouraging dealers to re-stock for the traditionally strong autumn festival season.

New data this week show India's gold imports rising in July despite the new measures, reaching $2.9 billion from $2.5bn in June.

With the Rupee crashing to new all-time lows on the currency market, however, gold prices are near record highs for Indian households. So today's Hindu festival of Raksha Bandhan is seeing only weak demand, according to the Wall Street Journal.

New Delhi last week also raised gold import duty to 10% – up from 1% just 18 months ago – and banned the import of gold coins and medallions entirely.

It further extended a rule demanding that 20% of all new gold imports be set aside for re-export to include unrefined dore, thereby affecting India's domestic gold refining industry – originally a beneficiary of the government's attack on gold bullion imports

"We believe the currency will remain under pressure until the current account deficit narrows meaningfully, or capital inflows accelerate due to an improving growth outlook," says credit ratings agency Moody's.

"The current macro context and consequently the monetary policy challenges are similar to those in FY1992," says Barclays Bank, flatly contradicting Indian prime minister Manmohan Singh, who was involved in the reforms which followed India's balance of payments and currency crisis of two decades ago.

One major reform was then the liberalization of India's strict gold import rules.

"Major banks including HDFC Bank and Axis Bank have begun to raise lending rates," reports India Express today, "which means people planning on festival loans will have to do a rethink."

"Opportunity exists for Dubai’s jewellery retailers," says Zawya online. "Already a substantial gap has built up between gold prices here and what the same would cost in India."

Press reports in both Dubai and Singapore today say local gold dealers are seeing a sharp increase in buying by Indian visitors.

"Speculative buying [in India] has picked up," says Surender Jainani of the Bombay Bullion Association, "in anticipation of a further rise in gold prices...since the festival and marriage season starts soon."

Adrian Ash

BullionVault

(c) BullionVault 2013

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