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China and India Curb Gold Imports at Record-High Prices

Demand to buy gold already soft in top 2 consumers...
GOLD IMPORTS to China and India, the precious metal's 2 largest consumer markets, are being curbed by government action, even as near-record prices and the seasonal summer lull dent household demand to buy gold jewelry, bars and coin.
Between them, China and India have accounted for 1-in-every-2 ounces of global gold demand between them over the last decade.
But with gold prices hitting new all-time Yuan and Rupee highs in 2023, China has suspended new import licenses for the precious metal while India has added some types of gold jewelry to its list of 'restricted' imports.
"Currently, no new import quotas have been issued and there have been no gold imports into China from previous issued," Reuters quoted Bernard Sin, regional director for Greater China at Swiss bullion refiners MKS Pamp, in early July, referring to licenses granted by central bank the People's Bank of China.
The resulting drop in new bullion supplies to the Shanghai Gold Exchange – the only legal entry point for gold into its No.1 consumer nation – means that the city's official Yuan price is showing a strong premium to quotes in London, the global bullion market's central trading and storage hub, even though local demand has apparently weakened amid what is typically a quiet season.
Chart of Shanghai gold price and premium above London quotes. Source: BullionVault
Last Thursday afternoon's Shanghai gold price benchmarking auction came within ¥1 per gram of early May's all-time record, fixing at ¥455.
But where this spring's peak saw the SGE benchmark offer only a $2.60 premium to London quotes – sharply below its $8 historical average and tracking the more usual pattern of strong prices finding softer demand, pulling the premium lower – last week's high came with a $14 premium, which then rose still further on Friday to $19 per Troy ounce despite the city's Yuan price dipping by only ¥2.
A lack of gold import licenses last September, imposed as the Yuan fell to 15-year lows versus the Dollar, drove Shanghai premiums to 6-year highs above $25 per ounce, also masking a retreat in Chinese consumer gold demand with a strong differential between London and local prices.
Midsummer marks "the traditional 'off season' for gold consumption," says Ray Jia, senior analyst for China at the mining industry's World Gold Council, "and China's economic recovery remains uncertain", also threatening to dent household demand to buy gold.
Already in June, says Jia, "Our conversations with local gold manufacturers suggest that the 13% year-on-year surge in the local gold price was the primary reason for the [10%] year-on-year decline in wholesale demand" as shown by the quantity of bullion withdrawn from SGE-approved storage.
Mid-summer also marks the closed season for buying gold in No.2 consumer India, with 2023's Hindu calendars not bringing any auspicious dates for marriages until September.
"Demand is very weak due to higher prices and the monsoon season," says one Mumbai wholesaler, telling Reuters on Friday that customers are hoping for a "correction" in domestic prices from last week's rise back above 60,000 Rupees per 10 grams, a new record high when first reached in April.
That was still $6 below the Dollar-equivalent cost of importing bullion and paying 15% duty plus 3% sales tax, easing $1 per ounce from the prior week's discount.
India's government on Wednesday tightened gold import rules, with the Directorate General of Foreign Trade moving the status of diamond-inlaid and some other types of jewelry – as well gold ornaments and tableware – from 'free' to 'restricted'. That means dealers will need an import license for new shipments unless they're bringing in metal from the United Arab Emirates under the India-UAE trade partnership agreement.
India has zero domestic mine output, a sharp contrast with China's world-leading production. The precious metal's No.2 consumer saw record-heavy imports on the gold price crash of spring 2013, leading the then-Congress Party administration to bring in complex import rules, effectively shutting new gold inflows, before replacing them with ever-higher rates of duty.
The BJP Government under Narendra Modi has continued those hikes to precious-metal import duty and also launched various schemes aimed at meeting demand by 'mobilising' India's existing household stockpile of gold – estimated at perhaps 20,000 tonnes, around 1 ounce in every 10 ever mined in history – thereby curbing imports and so easing pressure on India's current account deficit with the rest of the world in a bid to bolster the Rupee.
Launched in 2015, India's gold monetisation scheme – offering a rate of interest on gold deposited with the authorities – has attracted only 21 tonnes of gold in 8 years, says analysis from the mining industry's World Gold Council, matching barely 1/3rd of one per cent of the country's net bullion imports over that time.
India's stock market has surged so far in 2023 as the Rupee has continued its multi-year decline to fresh all-time lows.
China's Yuan has meantime traded below 7 per Dollar since mid-May, dropping at the start of July back towards last fall's 15-year lows amid weak Chinese economic data, plus expectations for the US Fed to continue raising Dollar interest rates.
Beijing also limited gold import licenses in late 2016, when a drop in the Yuan towards 7 per Dollar saw the authorities tighten capital controls to stem an outflow of foreign currency.
Both India and China meantime retain their ban on exports of gold bullion.

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