Gold Boosted By Call To Ease India's Import Restrictions

( Kitco News ) - News reports that Indian National Congress party chief Sonia Gandhi asked the government to ease the country’s import restrictions on gold were cited as one of the factors giving the yellow metal a boost Thursday, even though the government still says no.

Her reported push to change the rules is seen as the type of pressure that might eventually lead the government to relent, observers said. If so, that presumably would mean increased buying of gold in the country that historically was the world’s largest consumer prior to last year, when it was supplemented by China.

As of 11:34 a.m. EST, February gold was up $21.10, or 1.7%, to $1,259.70 an ounce on the Comex division of the New York Mercantile Exchange. It peaked at $1,267, its strongest level in six weeks.

Some of the supportive influences include a softer U.S. dollar against the euro after European and U.S. economic data, short covering and technically inspired buying, observers said.

“But the story about Sonia Gandhi talking about lifting the gold-import (restrictions) could be a huge deal,” said Phil Flynn, senior market analyst at Price Futures Group

The rules were put in place to combat India’s wide current-account deficit. However, they also hurt those who want to buy gold and gold-related businesses, and reportedly have spawned a sharp increase in smuggling.

“The market is hoping…there could be higher imports going into India,” said Robin Bhar, metals analyst with Societe Generale.

India raised duties on gold imports several times last year; they currently stand at 10%. Other measures were passed as well, including an 80-20 rule that stipulates that a minimum of 20% of all gold imported must be exported before further imports can be made.

Finance Minister Palaniappan Chidambaram, attending the World Economic Forum in Davos, Switzerland, reportedly responded by saying restrictions on gold imports can only be scaled back once the country’s current account deficit is under control. Nevertheless, the fact somebody as prominent as Gandhi is making a call for changes has increased hopes that they might come down the road.

“At least it’s being reviewed and they’ve obviously listened to the trade, jewelers, banks and so on,” Bhar said. “They are asking for some relaxation going forward.”

Flynn noted that many stories about smuggling gold into India have been in the press, such as gold hidden in the bathroom of a jetliner.

“That’s what happens when you’ve got a market that is very rampant and you try to put the clamps on it,” Flynn said. “You create even more demand for it.”

The Gandhi story is significant in that it represents the first major push in some time toward relaxing the rules, he said.

“If they take steps to remove the restrictions, that could mean a real surge in demand at a time when the physical market is relatively tight,” Flynn said. “That is an important story.”

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