Traders are taking a shine to gold exchange traded funds Monday, speculating on easing bullion import curbs in India after Narendra Modi’s win in the national elections.
Rising for the first time in three sessions, the SPDR Gold Shares (NYSEArca: GLD) was up 0.1% Monday. GLD has gained 7.2% year-to-date.
COMEX gold futures were up 0.2% Monday, trading around $1,296 per ounce.
According to Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation, India’s new government could cut the 10% import tax on gold in July and ease back on rules for importers to supply 20% of purchases to jewelers for re-export by mid-June, reports Swansy Afonso for Bloomberg. [More Election Help for India ETFs]
“There is a lot of optimism that India will slash the tariff rate,” Tommy Capalbo, a broker at Newedge Group in New York, said in a separate Bloomberg article. “People expect India’s demand to rise in the second half of the year.”
Cutting down on restrictions would bolster supplies to local jewelers ahead of the traditional festival season in August through October.
Nevertheless, Crisil Ltd. warned that while the Indian rupee is strengthening and the diminishing current account deficit allows some room to ease the gold import limits, gold is not at the top of the new government’s agenda. India originally introduced the import curbs to help reduce the record current-account deficit and the depreciating rupee currency.
“It’s not the burning issue right now,” Dharmakirti Joshi, the chief economist at Crisil, part of Standard & Poor’s, said in the article. “It’s one of the items on their to-do list. The currency is strengthening and capital inflows being in a good position, it allows the government to taper it off in a pretty orderly manner. At least symbolically they should start doing it.”
India made up 25% of global gold demand in 2013, according to the World Gold Council.
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.