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Gold prices in India also remained high with the highly pure 24-carat gold priced at ₹77,840 per 10 grams. The more durable 22-carat gold, commonly used in jewellery, is currently priced at around ₹71,350 per 10 grams.
Paritosh Mathur, Head of Wholesale Banking at IDFC First Bank, attributed the significant dollar demand in November to increased purchases of gems, gold, and jewellery, driven by the festive and wedding seasons.
He also pointed out that the customs duty cut earlier in the year had further stimulated gold demand.
He emphasised that the current trade deficit levels and elevated gold buying are not expected to sustain at these levels.
Gold prices edged higher as attention turned to the Federal Reserve’s monetary policy decision due on December 18. The US central bank is expected to cut rates again and provide an outlook on the way forward for 2025.
These are the verbatim excerpts of the interview.
Q: This trade deficit data coming at a monthly all-time high, whether you took services and goods or only goods, is that likely to worsen? Are you going to see even more deficits, and are you changing your current account deficit forecasts?
Gupta: This month’s November trade deficit number was clearly very, very weak. But when we are looking at the trade data, we also have to firstly remember that, you know, there’s a huge seasonal component that plays out in October-December quarter. So you have the festive season, which leads to an increase in gold demands. Gold demand volumes went up for the November data, and that was the reason why our gold imports were significantly higher.
Also, November is usually a slow month in terms of exports, but they usually tend to recover a little bit in the month of December, as you have the holiday season in the West. So clearly, one way to look at this data is that, yes, there is some amount of seasonal component here. But even if I kind of correct for all the seasonality, clearly there is a pressure building up on our trade deficit, and consequently on the current account.
We are going to see export growth continuing to slow down as we move forward in the coming months, particularly as major trading partners like Europe and China continue to see slower growth. There are headwinds coming from the external front.
In terms of our import basket, while oil prices have been broadly contained for now, they still continue to remain elevated. We haven’t seen a sustained fall in oil prices as of yet.
On the gold front, given the continued uncertainty globally, both on account of Mr. Trump coming and taking power in the US and the geopolitical tensions that continue to kind of simmer on gold prices are expected to remain elevated. The sense that we are getting on the current account and our trade situation, clearly, is that we are looking at a print of 1.5% of GDP for the current account deficit for this fiscal year.
Read Here | India’s trade deficit widens to $37.8 bn in November; Gold imports hit record high
Q: Have your numbers deteriorated after seeing the November data, were you at 1.1% and you went to 1.5% current account deficit (CAD) because some of the economists have increased their current account deficit expectations after seeing the data?
Gupta: We were at 1.2% in terms of our current account deficit, and we have raised that to 1.5%. As I said that this is coming on the back of that, even if I make, adjustments to the seasonality that we see in this data, the weakness clearly has been much more than what we would have witnessed.
Q: Would people think that, we are going to head into greater purchases of dollars, because our imports are going to be higher than our exports even for the coming months. Is it leading to people buying dollars forward, importers, or whoever?
Mathur: The specific, extraordinary dollar demand that we saw in November could be attributed also to the large gems and jewellery buying, gold and jewellery buying that has taken place. You could consider that for the festive season, marriage seasons, etc. And also, obviously the customs duty cut that took place in July, August is further boosting demand for gold.
If you take out the gold component from the trade deficit number, it’s a moderate increase. It’s not a very dramatic increase that should fundamentally make us believe that trade deficit of this order, is here to stay on a month-on-month basis. We would right now, be inclined to believe that trade deficit would sort of settle back into a $25 to $28-29 billion range. Probably not go back all the way to $20-$22 billion range, but could settle back into $25 to $28 billion range, and therefore overall deficit of a 1.3 to 1.4% maybe 1.5% is potentially the outcome for the full financial year.
Q: I am worrying only because we have never seen $15 billion, the highest we last saw was $10 billion of gold imports in the month of August. So I am just worrying that will we go back to that $3 to $5 billion and I don’t know if it can fall that much, will it be a new low, or rather, a new normal in terms of higher deficit Paritosh, no fears like that in the market?
Mathur: I don’t think that market is currently believing that this trade deficit member is going to be sticking around and the gold buying is going to be sustained at these levels.
For full interview, watch accompanying video
Also Read | Gold prices steady ahead of US Fed meeting: Key factors investors should watch
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