India's imports of gold have halted since July 22, sending premiums for scarce stocks soaring, as traders in the world's biggest bullion buyer try to puzzle out new central bank rules that tie imports to export volumes.
In its battle to rein in a record trade deficit, India has targeted gold, the second-biggest item in its import bill after crude oil.
India doubled its import duty to 8 percent from the 4 percent where it stood at the beginning of the year, and also requires a fifth of all gold imports to be used for export, usually in the form of jewelry.
June imports fell nearly 81 percent to 31.5 tons from a May record of 162 tons, although Finance Minister P Chidambaram said on Monday imports had risen again in July, but without giving any details.
"There have been no imports since July 22 [the day of the central bank announcement] due to these restrictions," Bachhraj Bamalwa, director of trade body the All India Gems and Jewelry Trade Federation, told Reuters.
Imports in July could have reached 45 to 55 tons, he said, implying that demand remains strong. "Premiums are increasing as there is no gold available," he added.
Traders were quoting a premium of up to $45 an ounce over London spot prices on Tuesday, up from $25 to $30 in the previous session.
"No one in India is able to import for now, due to the new regulations and a lack of clarity on the operational procedures," one trader in Singapore said.
The confusion over the new rules and procedures could cut imports by 60 percent, according to estimates by the Federation, just ahead of the peak wedding and festival season that usually kicks off around the middle of August.
Waiting for guidelines
Industry officials said import agencies were waiting for guidelines from Indian customs on clearing shipments through warehouses and the new export-linked policy on imports.
In the new scheme, importing banks and agencies have to ensure that the requirement for re-exports is met.
"The notification requires a lot of clarifications," said an official with a private bullion importing bank, who did not want to be identified because he was not authorized to speak to the media. "No bank has started importing [after the Reserve Bank of India's order]."
Dealers are not ready to import gold and store it, he added, with only imports for immediate sale expected to take place at the moment.
A Singapore-based trader with an international bank that has stopped shipping to India said the new guidelines and the central bank's flip-flop on a rule that had forced only cash deals for imports were sending mixed signals.
In May, India's central bank restricted the import of gold on a consignment, or credit, basis by banks, only to backtrack two months later.
"We don't want our stock to get stuck there. So we would rather stay put at this stage," the trader said.