Banks cut back on gold imports ahead of festivals

Three bank officials and two vault operators told MUMBAI Gold that banks have cut back shipments to India ahead of major festivals in order to focus on China, Turkey, and other markets where better premiums are offered.

In the coming peak-demand season, that could cause scarcity in the world's second biggest market for gold, and force Indian buyers to pay hefty premiums for supplies.

Leading gold suppliers to India - including ICBC Standard Bank, JPMorgan and Standard Chartered - usually import more gold ahead of festivals and store it in vaults.

The vaults now hold less than 10 per cent of the gold they did a year ago, the sources said on Tuesday.

Ideally a few tonnes of gold should be in vaults during this time of the year. One vault official said that we only have a few kilos.

In India, premiums over the international gold price benchmark have fallen to $1- $2 an ounce, against $4 this time last year.

Some Indian trading houses have been able to import gold as lower-tariff platinum alloy because of a loophole that led to a sharply lower premium, said Chanda Venkatesh, managing director of Hyderabad-based bullion merchant CapsGold.

Pent-up demand being released after COVID related lockdowns and $80 in Turkey have helped boost gold imports in top consumer China, which has risen sharply against the backdrop of rampant inflation.

A Mumbai-based official with a leading bullion-supplying bank said that banks will sell where they will get a higher price.

There is no comparison when we equate it with the Indian market, said an official who did not want to be named due to the bank's policy.

India's gold imports fell 30 per cent from a year ago to 68 tonnes, while Turkish gold imports soared 543 per cent. In October, Indians will celebrate Dussehra, Diwali and Dhanteras when buying gold is considered auspicious. After these festivals starts the wedding season, which is one of the biggest drivers of gold purchases in India.

Thin vault stocks could force Indian buyers to pay hefty premiums to secure supplies, said a Mumbai-based bullion dealer with a bank.