Lift of import curbs may crash gold prices

Mumbai: With gold taking a beating in 2013 along with several other commodities, commodity traders expect gold to  continue to be weak if the Indian government relaxes the duties on imports.

Considering the three-year boom in the stock market and the recession in the commodities market, as per tradition commodities should witness a rally, said Dharmesh Bhatia, of  Kotak Commodities Services Ltd.  “But investors will have to be really savvy to make a return from commodities,” he said.

Further particularly in the case of gold he says, prices could crash if government removes the duties on gold imports or even relaxes the curbs significantly. Today there is a high premium on gold because of the shortage due to a drastic drop in gold imports.

Mr Bhatia said that Barclays Bank had stated that commodity-linked investment funds are headed for record outflows in 2013 and between November 2012 to November 2013, there has been a $88 billion decline in assets under management.

Investors had withdrawn $36.6 billion from the commodity funds during this period due to the decline in prices of sugar, coffee, nickel, gold, silver etc. But the biggest and bulk sell-off was witnessed in gold with a 29 per cent crash after a rise over nearly 11 years.

EPFR global which is a more official source estimates that investors have withdrawn $38.8 billion investments from gold funds alone.

Gold prices globally crashed by 37 per cent till December from the record peak of $1,923 per ounce witnessed during September 2011.

While there is no indication that government is in any hurry to left the ban on gold imports there has been a demand from the Union commerce and industry minister Anand Sharma for relaxing the curbs on gold imports.

Even  the Reserve Bank of India governor Raghuram Rajan is of the view that if curbs on gold imports continue. It would incentivise smuggling.