India's gold imports are likely to double in October, driven by demand from consumers who purchase jewellery during the festival season. But investment demand, usually in the form of coins and bars, is likely to be less this year, which in turn may reduce the volume of gold entering the country through illegal routes, say industry executives.

The bullion industry pegs gold imports at 80 tonnes next month."Last year during October, we had imported around 35-40 tonnes of gold. Gold availability was under pressure due to the 80:20 rule," Prithviraj Kothari, vice-president of the Indian Bullion & Jewellery Association, told ET.

"But now the process of getting gold has eased and we are expecting 80 tonnes of gold imports as there is demand for the yellow metal in the market."

The 80:20 rule was introduced last year to reduce gold imports, which were straining the country's current account. Under the rule, agencies that import gold have to ensure that 20% of the shipment is exported after adding value, such as by turning them into jewellery. This led to the agencies slowing down imports, as they weren't sure how to ensure the export requirement, leading to a drop in gold availability in the local market. This rule, and a 10% import duty on gold, have also led to an increase in gold smuggling.

According to Kothari, entry of gold through illegal routes gathers momentum if there is a sudden surge among investors for the yellow metal. If investors sense that gold will generate good returns they start putting in money in gold.

But as of now investors are not finding gold as an attractive investment option vis-a-vis equity though the equity market has slipped this week, he said.

Investment demand for gold has dropped by 67% from a year earlier to 49.6 tonnes during the second quarter of 2014, according to the World Gold Council. However, if the capital market enters into a bearish phase, then investors may start looking at gold again, said industry executives.

"In that case, there will be pressure on the supply side which may see premium on gold going up ... which may then result in entry of gold through the illegal route as this gold carries very little premium," said Bachhraj Bamalwa, a member of the All India Gem & Jewellery Trade Federation. "At present, gold through the official route is commanding a premium of $7 per troy ounce, which is lowest in recent times."

Premium is what bulk buyers pay for immediate delivery of the metal.Bamalwa expects gold imports to total 70-80 tonnes this October.

He said at present, the ratio between gold jewellery and investment demand is 90:10, which means most of the gold buying is in the form of jewellery. According to analysts, gold will not give much return in the near term as internationally prices are dropping. "If someone wants to invest for the long term, say for a year, then he can expect some return. That is why there is very less demand for gold in the market," said Hareesh V, senior analyst at Geojit Comtrade.

"Investors across the globe are on a wait and watch mode. Prices in India could have been lesser if the rupee had not weakened against the dollar," Hareesh added.In the international market, gold may drop below $1,200 level, and may fall to as low as $1,180 mark, analysts said. In the local physical market, gold was trading at Rs 27,000 per 10 gms.

"There is demand for gold jewellery and people are keen to buy at this price level," said Saurabh Gadgil, director of Pune-based jewellery firm PN Gadgil.

Source:-economictimes.indiatimes.com