India could help gold exchange traded funds shine again as industry experts anticipate Prime Minister-elect Narendra Modi to roll back import restrictions, but traders shouldn’t expect immediate action.
According to the World Gold Council and other industry officials, gold imports into India, the world’s second largest bullion consumer behind China, could double if import restrictions are eased, Reuters reports. [India Could Cut Import Restrictions, Bolstering Gold ETFs]
“The change (in gold policy) is inevitable because Modi seems to be pro-gold,” Albert Cheng, WGC’s head of the far east region, said in the article. “It’s just a matter of when he is going to do it.”
Modi, the leader of the pro-business Bharatiya Janata Party, has stated that decisions on gold will take into account public interest and traders, along with economic data and policies.
In 2013, India enacted a 10% duty tax on foreign gold purchases and imposed a new rule tying imports to export levels as a way to rein in an expanding trade deficit and quickly depreciating rupee currency. Consequently, gold imports declined by a fifth last year.
India’s gold demand dipped by a fourth to 190.3 tonnes in the quarter to March, with imports averaging 24.7 tons since July 2013, compared to 78 tons before the government limits.
“Our current expectation is that any policy review would allow monthly gold imports of an average of 50-60 tonnes a month and a reduction in import duty as well,” Sudheesh Nambiath, an analyst with metals consultancy GFMS, said in the article.
However, gold analysts argue that any easing on tariffs will be in the mid- to long-term. An India Bullion and Jewellers Association official has stated that the BJP leaders would review gold policies in the first three months after an election victory.
“We feel that removal of gold policy curbs won’t happen in a hurry, and it will take another two months for further action,” Prithviraj Kothari, a director at India Bullion and Jewellers Association, said in the article.
Investors seeking to gain access to changing bullion prices can look at physically backed gold ETFs, including the SPDR Gold Shares (GLD) , iShares Gold Trust (IAU) and ETFS Physical Swiss Gold Shares (SGOL) . The ETFs have gained about 7.3% year-to-date.
SPDR Gold Shares
For more information on gold, visit our gold category.
Tom Lydon’s clients own shares of GLD.