India Hopes to Rein in Current Account Deficit as Gold Hits Two Year Low

Gold prices have recorded a slight rebound after hitting a fresh two year low on Tuesday morning, as the two bomb blasts in Boston marathon event and global growth concerns dragged the US stock markets down overnight.

Bucking the trend in the broader Asian markets, which extended their losses following the dismal performance of Wall Street, Indian stock markets rallied helped by the fall in gold prices and crude oil.

India's BSE Sensex index gained nearly 1.8 percent at 10:16 BST as investors turned bullish on hopes that the falling bullion and crude prices could help contain the widening current account deficit in the world's biggest gold consumer.

"These are positive developments because India's current problem is certainly growth and not so much inflation...So a lower current account deficit obviously gives RBI more room to cut... It could be 100 or 150 bps more if we manage to tame the current account deficit and it also bodes well for the currency," Suresh Mahadevan, Managing Director and Head of Equities, UBS Securities told the Indian daily The Economic Times.

Meanwhile, India's April gold imports are likely to go down nearly 25 percent to around 53.25 tonnes as against the same period a year ago. The country had imported 71 tonne gold in April 2012.

"The imports of the yellow metal are likely to be 25 percent less than the corresponding month last year as the gold prices are declining steadily. Usually, when the prices drop traders hold back in anticipation of further decline, while they buy when prices rise with the fear of additional increase in rates," Bombay Bullion Association president Mohit Kamboj told the Press Trust of India.

Cash gold dropped to as low as $1,321.35 an ounce and stood at $1,332.15 by 0144 GMT, down $20.60, showed a Reuters data.

The bullion is now nearly $600 below a lifetime high of nearly $1,920 an ounce recorded in September 2011.

However, the trend in international market was not reflected in domestic gold prices as the drop was largely offset by the weakness of the India rupee.

Miners Suffer

The steep drop in prices have already impacted the share prices of major mining companies with some of them losing over 10 percent in the previous trading day.

Barrick Gold Corp dropped 11.5 percent to C$20.3 on the Toronto Stock Exchange while rival Gold Corp fell 5.6 percent to C$28.38.

The price drop comes at a time when these firms are already reeling under the pressures of high costs related to acquisitions done during the hike of the prices as well as other operational expenses.

Though the profits of these companies may not be under pressure as the producer cost of these major miners are estimated to be below $1400 an ounce. But, the situation is likely to force these firms to tighten the capital spending.

Fears that the central banks may offload some of their gold reserves and the uncertainty over the future of the Fed's stimulus programme as well as signs of slow growth in China have raised the barometer of panic in the bullion market.

Gold prices were also dragged down by major hedge funds as they chose to reduce their huge exposure in the gold exchange-traded funds (Gold ETF). The slide was across the spectrum as other commodities also joined the slide.