You can't wish away demand for gold by crushing supply: WGC

Despite all the government efforts to curb demand for gold, the yellow metal will not lose its sheen in India, Somasundaram PR, Managing Director, India, World Gold Council, told Firstpost.

Bindisha Sarang December 21, 2014 03:49:02 IST

Despite all the government efforts to curb demand for gold, the yellow metal will not lose its sheen in India, Somasundaram PR, Managing Director, India, World Gold Council, told Firstpost. Investment demand for gold has increased from 16 percent to 38 percent.

In its desperate bid to contain a widening current account deficit, the government has taken various measures to curb gold imports. It increased import duty several times in the last one year. The duty now stands at 15 percent. The finance minister even resorted to moral suasion. It also controlled the sale of gold coins and bars by banks.

You cant wish away demand for gold by crushing supply WGC

Somasundaram PR, Managing Director, India, World Gold Council.

As a result of these measures, gold imports decreased to a trickle in August.

"After the 80:20 rule was introduced a few weeks ago there was lack of clarity about the rule. But now with clarity coming in the official imports have resumed," Somasundaram told Firstpost in an interview.

In July this year the Reserve Bank of India introduced the 80:20 scheme under which 20 percent of the total gold imports were to be exported back. No further imports were permitted if this 20 percent norm was not met. The move was also aimed at limiting gold imports.

"Whenever there is gold shortage people do spend money on diamonds. Gold has certain status within the household, within the vault as well. I don't think it can be taken away by gems," he said.

What the government's curbs on gold also did was increase the imports through unofficial channel of gold imports goes, he said, "How much of the demand comes through unofficial route is not something WGC tracks. But we can see that anecdotally this channel is very active, given all the confusion in the sector and organised trade. Given the nature of demand, we do tend to believe that unofficial import is a serious risk we are running."

He further mentioned that gold would never lose it sheen; it would always retain its place. In fact the investment demand for gold has increased from 16 percent to 38 percent.

Somasundaram also shared his views on demand for gold this festive season, the state of gold ETFs in India and globally.

Watch the full interview above.

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