India’s gold imports fell 3.3 per cent to $26.11 billion during April-February 2020-21. Imports of the yellow metal stood at $27 billion in April-February 2019-20, data released by the commerce ministry said.

The decline in gold imports has helped in narrowing the country's trade deficit to $84.62 billion during the 11-month of the current fiscal, as against $151.37 billion a year ago.

Gold imports have a bearing on the country's Current Account Deficit (CAD) that occurs when imports are more than exports. Key items in our imports include oil, gold, and electronic products. Therefore, a sharp increase in international oil prices impacts the value of our imports, thus increasing the CAD.

International crude oil prices are under check currently. India has also started manufacturing electronics products (mostly mobile phones) domestically under its import substitution strategy of ‘Atmanirbhar Bharat’, which has helped its CAD to narrow down. The falling gold prices have also aided the trend.

India is the largest importer of gold, which mainly caters to the demand of the jewellery industry. In volume terms, the country imports 800-900 tonnes of gold annually.

The fall in gold imports is due to the fall in global gold prices. Gold prices were quoted in the range of $1,950-2,000 per ounce, which have come down to around $ 1,650 per ounce. Also, because of higher prices and economic slowdown induced due to the pandemic have resulted in a decline in gold demand off late.

To promote the export sector, the government recently announced a reduction in the import duty in the Budget on the metal to 7.5 per cent. However, it also attracts agriculture infrastructure and development cess at the rate of 2.5 per cent.

Kshitij Purohit, Product Manager Currency & Commodity, CapitalVia Global Research said, there are various reasons why gold prices are facing resistance.

He said gold prices have been trading in a narrow range, retaining support but gaining little traction. “Prices have struggled to gain traction as the dollar has strengthened and the yield on the 10-year Treasury note has risen. US 10-year bond yields jumped almost 9 basis points this week, while the dollar surged 0.3 per cent. Because gold is quoted in US dollars, it has a tough time increasing when the dollar's value or treasury yields rise”, Purohit said.

MCX Gold future traded in a narrow range of Rs 44,750 – 45,120 per 10 grams throughout the week and closed on a positive note at Rs 45,020 above the support of 15-days moving average.

As the economic recovery gains traction globally with rising inoculation drive, the gold demand will continue to fall in the short term. Also, currently, equity is the preferred asset class in the wake of early signs of economic recovery.

In this backdrop, Purohit said, “For the upcoming week, traders should look forward to the sell-on-rise opportunity in gold from Rs 45,200, keeping stop loss of around previous resistance level of Rs 45,650, for aiming target of Rs 44,635.”

Gems and jewellery exports declined 33.86 per cent to $22.40 billion in April-February 2020-21.

The imports of gold jumped to $5.3 billion in February as compared to $2.36 billion in the same month last year, the data showed. Silver imports during the 11 months have dipped by 70.3 per cent to $780.75 million.