Indian Gold Premiums Explode After Nation's Biggest Gold Importer Suspends Bullion Dealers Accounts

Following news last week of a surge in Chinese retail gold premiums as demand for physical bullion soars amid China capital controls, Reuters reports that the chaos in India has sent people rushing to buy gold, paying as much as a 50 percent premium above official India prices. This renewed surge in demand for physical in india follows reports that India's top importer of gold, Axis Bank, reportedly suspending the bank accounts of some bullion dealers and jewelers following the arrest of some executives over money laundering.

 

Last week saw news of reported gold import curbs in China (and looming capital controls) has sent gold premiums in China near three-year highs amid limited supply of the precious metal (as Reuters reports)...

The import curbs may be part of China's efforts to limit outflows of the yuan after the currency's slide to its weakest in more than eight years, traders say. China allows only 15 banks to import gold, including three foreign lenders.

 

"There is severe restriction on the banks' quota to import gold into China. Each one of them have to justify their need," a Hong Kong-based banker said.

 

Gold was sold in China at about $24 an ounce above the international spot benchmark this week. Premiums went as high as $30 last week, the most since January 2014, according to Thomson Reuters data.

 

 

"Supply has been limited and so the premiums have held firm," said Cameron Alexander, analyst with Thomson Reuters-owned metals consultancy GFMS.

And now, as Reuters reports, concerns are growing in India that import curbs or outright confiscation may be coming...

Axis Bank Ltd, India's top importer of gold, has suspended the bank accounts of some bullion dealers and jewellers after two of its executives at a branch were arrested over alleged money laundering.

 

"We have temporarily suspended transactions in a few current accounts as a part of a larger enhanced due diligence exercise being conducted on transactions post-demonetisation," the bank said in an e-mailed reply to questions from Reuters.

 

Axis did not directly comment on the arrests. Last week the Enforcement Directorate, a government agency that fights financial crime, said it had arrested two Axis bank employees for allegedly helping launderers to buy gold with the help of scrapped notes.

 

The bank said the suspended gold dealers' accounts will be restored over the next few days after an "enhanced due diligence process".

 

A Chennai-based bullion dealer, who declined to be named, said the bank had frozen his account without giving a reason. Half a dozen other dealers in Kolkata, Mumbai, Ahmadabad and New Delhi also confirmed the freezing of their Axis accounts.

 

The move has brought bullion trading to a standstill, with jewellers fearing attention from government agencies if they make large purchases, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

The move is likely to curtail imports by the world's second-biggest gold consumer this month and could weigh on global prices already near their lowest level in ten months.

In November the country's gold imports jumped to around 100 tonnes, the highest in 11 months.

 

Jewellers and bullion dealers are deferring purchases and gold imports in December could fall to 30 tonnes, down from 107 tones in the same month a year ago, said a Mumbai-based dealer.

 

It is estimated that one-third of India's annual demand of around 800 tonnes is paid for in "black money" - the local term for untaxed funds held in cash by citizens that do not appear in any official accounts.

And this has sparked a surge in physical demand (amid limited supply concerns)... (as Reuters reports)

There have also been reports of people rushing to buy gold by paying as much as a 50 percent premium above official prices using their unaccounted money to skirt the note ban.

And as we noted previously, it's not just Asia.

In the US, physical gold demand has soared post-election in The United States as the paper prices were pummeled...

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