Why Low Gold Imports Can Keep Rupee Under Pressure?

January 8, 2014

Why Low Gold Imports Can Keep Rupee Under Pressure?

Greetings from Hitesh! I am happy with your responses in the last week to join our special offer. I thank you all for the same. Now let me deal with the above captioned subject matter.

Gold Imports Down!!

As per the Government estimates, India’s Gold imports is likely to be lower by 40% this fiscal. They are estimating gold imports of 515 tones in 2013-2014 against 846 tones in 2012-2013. If you look at the face value, it’s good news and all and sundry are happy to talk about the same.

If this is correct then rupee should get the boost and it should at least appreciate by 20% and come to modest level of Rs.53-Rs.51. (Oil and Gold are two  major items of Indian imports. 40% down in gold imports should affect the rupee by atleast 20% on upside)

We have gone deeper into the matter to find out the secret for you. Let me deal with the same for you.

How Smuggling affects the Rupee?

Current rate of Gold is USD 1250 per ounce. At Rs.62, the price works out to Rs.77500 for 31 grams (one ounce is 31grams). So, per gram cost is Rs.2500 or Rs.25000 for 10 grams. Due to tax, we are getting the gold at Rs.29800 even today.

How the Cycle Works?

Say there is a person who wants to import gold illegally to India. He needs to pay in USD. So, he sells the Rupee and buys USD to pay for Gold. When he sells the rupee……he has to pay the premium for USD. Against official rate of Rs.62, he pays Rs.64-Rs.65 to buy USD.

Let us see the calculations for 1 ounce.  He buys USD 1250 at Rs.65 and pays for the gold. His effective cost of gold will be Rs. 81250. This translates into per gram gold cost of Rs.2620 or Rs.26200 per 10 grams. If he sells the same at say Rs.29000, he makes Rs.2800 or 11% in profit. Total cycle can take little less than a month…..so he ends up doubling money in less than a year.

Now let us see the government data again?

As per the government data we are importing 313 tones lesser (846-515) this fiscal. If these gold comes from unofficial channels…….and that too by paying premiums for USD (approximate 5% premiums – Rs.65 against Rs.62), then do you think rupee can appreciate ever?

Why we believe that Gold import can not go down so much?

We have got the gold import data from 2005. Just see the same.

Gold Imports
Financial Year Ended	In Tonne
FY05	618.00
FY06	566.00
FY07	558.00
FY08	537.00
FY09	623.00
FY10	800.00
FY11	1004.00
FY12	891.00
FY13	846.00
FY14*	515.00
*Estimates
Source WGC

If you look at the data….our last 9 years average it is around 715 tons. We do not expect it to come down by 40% in any case.

My Personal Call:-

I am not an expert on Forex or Gold. However, on June 28, 2012…we had written our most read article…Should You Invest in Gold and Silver Now?. In the same we had categorically told you not to buy gold. Just see our accuracy…. The gold price has fallen by 28% in 2013!!

How many of your media analyst or so called experts were giving you categorical advice not to buy gold way back in June 2012? If you have followed them…..you must be cursing your luck.

I have always kept you ahead of the market and market experts. Not because I am a super expert….its just that I am an investor first. I have never advised investments in any company or commodity, where I will not personally put my own money. Moreover, it gives me immense satisfaction when market agrees with my calls and I see other experts following the same!!

If you also want to make money by staying ahead of the market, do take advantage of our special discount offer now.

You can follow me @hiteshmparikh on twitter or on Whatsapp on +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh.