The height of the festival season is only days away, but the usually bustling Zaveri Bazaar in Mumbai, India's largest, is quiet. The only sound is the ringing of telephones, which are ignored. Instead, jewelers frantically work their cell phones, looking for a wholesaler who can supply gold immediately. The distributors in turn beseech the banks, which are the major gold importers in India, only to come up empty themselves. Even at a spot price of $120 an ounce over London prices, there is no gold.
New government restrictions require 20% of all gold bullion imports to be set aside and used to make jewelry for export. Only once 3/4 of that 20% has been exported, can the importer gain access to the other 80% of his order and sell it on the domestic market. One would think that this wold lead to a surge in jewelry exports, but instead, they have dropped more than 50% so far this year, to $3.34 billion. Ambiguities in the new laws had importers frozen with fear for two months, and gold shipments are just resuming. Last September, gold imports into India totaled $4.6 billion . This September, it was only $800 million. The estimated imports for October so far have been 5 tonnes, with a domestic demand of 100 tonnes.
Panic is growing every day, as the first week of November and the major festivals of Diwali and Dhanteras creep ever-closer. The auspicious Dussehra festival has come and gone, with no gold to be had. Importers are saying that the earliest gold shipments are 10 days out. Bachhraj Bamalwa of the All-India Gem and Jewelry Federation says that if relief doesn't come soon, the open market premium for gold in India will rise to $150 to $200 an ounce over the London benchmark. RiddiSiddhi Bullions Ltd., the largest gold importer in India, said that last year at this time, they were moving 300 kg of gold a day. This month, they are moving 20 to 30 kg a day. On Tuesday, the Indian Finance Minister said that the government would not relax import restrictions on gold whatsoever. In addition to the "80/20 Rule", there is a 10% import tax on bullion and dore, and a 15% import tax on gold jewelry.
The shortage is so bad, even the smugglers are charging a premium of $50 an ounce over global spot price. Mr. Bamalwa said smugglers are making a 500,000 rupee (over $8,100) profit on every kilogram (32ozt) of gold they get past customs. Dubai and Singapore are favorite origins for the illicit bullion, with premiums in Singapore being only 2% over the London spot price. Smuggling has exploded across India, with airports forced to buy special metal detectors that look for hidden gold instead of hidden weapons. Land routes for gold smuggling through Nepal and Bangladesh are seeing heavy traffic, and Pakistan had to close a program for duty-free gold imports meant to stimulate the local jewelry industry- the gold was going directly through mountain passes into India.