Asian demand for physical gold has picked up in recent days, thanks partly to low prices lifting demand during India’s Diwali, the festival of lights, which is the country’s biggest gold-buying occasion of the year.
Analysts say that nearly 20% of annual sales are generated during the five-days-festivity that kicked off today, and the World Gold Council predicts that India will import 850 to 950 tonnes of gold in 2014 a report.
Given the gold craze in India, it is no surprise that the precious metal is the second biggest import item after crude oil. The country’s total gold and silver imports stood at $55.7bn in the 2012-13 financial year.
But this has had an adverse impact on the current account deficit (CAD), which is the gap between export revenues and imports payments.
In 2013, the government raised import tariffs to 10% to bring down the deficit. It also made it mandatory for trading agencies to then export 20% of the goods, which had been imported.
These curbs had a major impact on supply, with the value of gold and silver imports dropping 40% to $33.4 billion in 2013 -14.
However, as a result, the deficit narrowed to $32.4bn from $87.8bn during the same period, according to the Reserve Bank of India.
Now as India relaxed some import restriction, which led to a 34% drop in demand in the first half of 2014, purchases are set to improve in the Asian giant.
Gold moved sharply lower in the first half of last year, witnessing its biggest yearly drop since 1981. This year, rising volatility in the stock market and worries over inflation have sent gold shares higher by 3.4%.