Indians bought more gold in July than June despite a series of moves by the central bank to strangle supplies, and their insatiable appetite has forced neighbouring countries to take steps to curb their own imports.
India's gold imports hit $2.9 billion in July, up from $2.45 billion in June, official data showed on Monday, confirming Finance Minister P. Chidambaram's fears that despite hikes in import duties and steps by the Reserve Bank of India (RBI) to stem supply, demand is on the rise again.
Chidambaram wants to curb gold purchases because they are the most costly non-essential item that India imports and have helped push the current account deficit to a record high, undermining government attempts to stabilise the economy and the rupee ahead of elections.
India imported $2.9 billion of gold and silver in July, up from $2.45 billion in June, and even though that was down a third from July last year, it comes on the back of record imports in April and May and despite rising domestic prices in July. Silver is a tiny fraction of the imports.
While India will almost certainly yield its title of biggest bullion buyer to China this year, jewellers are concerned that imports are still too high for the government's comfort and that it might take more measures to curb them further.
The RBI last moved on July 22, when it stipulated that 20 percent of gold brought into the country must head out again as jewellery - a move that has dried up supplies and stalled business as traders wait to find out how the rule will work.
Demand in the country remains strong, however. Gold is still a must-have at weddings and festivals, which get into full swing in the next few months.
EFFECT ON NEIGHBOURS
There are signs now that Indians may be bringing in gold through neighbouring countries, pushing their imports sharply higher as well and prompting action by their governments.
Pakistan has slapped a one-month ban on gold bought to make jewellery for export after its imports jumped 386 percent in the first half and topped $514 million in July alone - more than double what it bought in the first six months of 2012.
"The difference in import duties seems to have provided the incentive for increased duty-free imports in Pakistan and smuggling to India," a statement on the finance ministry's website said.
The Pakistan government will look at steps to quickly get rid of