KOLKATA (miningweekly.com) – Indian gold trade and prices have been thrown into turmoil by the Indian government’s demonentisation of high value currency notes as well as speculation being rife that government plans to impose a ban on gold imports and household holdings.

While there has been no official statement, confirmation or indication to the effect, the domestic gold trade has caught a severe bout of nerves over the rumour that the government will clamp down on gold imports and limit the volume of the precious metal that individual households can hold.

Unattributed quotes by Finance Ministry officials in the local media dispelling rumours surrounding gold control laws have failed to quell market jitters. Jewellery sales at retail outlets during the current wedding season, which traditionally witnesses a sharp increase in gold demand, have come to a near standstill.

India, the second biggest consumer of gold after China, importing an average 750 t/y of the precious metal, has suffered a sharp downturn in demand with most gold retailers now charging a premium of around $3/oz against payments in now-defunct high-value currency notes, at least two Kolkata retailers have said.

The gold traders said that the market was expecting some kind of clampdown on gold imports and household holdings as the next stage of government’s efforts to unearth unaccounted and untaxed income, commonly known as ‘black money’ in local parlance.

On November 8, the Indian government demonetised Rs500 and Rs1 000 currency notes or banned their use as legal tender in a move to unearth such unaccounted and untaxed wealth held in currency and issue fresh denominations of Rs500 and Rs2 000 notes to check floating counterfeit currencies.

However, the move, which effectively sucked out an estimated 86% of the total value of currency circulating in the economy, saw all markets suffer severe a liquidity crunch with trades in the gold market drying up, the traders said.

In 1963, India imposed a Gold Control Act, which limited holding of gold to 2 kg and 4 kg for individuals and families respectively, licensing for retailers of gold jewellery and an import ban on the metal.

A return of such restrictions in perhaps different avatar has unnerved the trade, a member of the Bullion Merchants Association has said.

Last week, domestic gold prices in local markets hit a seven-year low at Rs28 980 for every ten grams in the absence of any buying sentiment and a shortage of individual cash holdings. Since the currency denomination reforms, government has also imposed limits on cash withdrawal from bank saving accounts to Rs24 000 each seven days.

While few in the gold market were willing to offer on record comment or information on trade, fearing the attention of tax officials in the season of a government clampdown, there have been anecdotes aplenty from gold retailers of receiving mobile phone messages suggesting various kinds of gold trade and import restrictions will follow the currency demonetisation.