The government of India hiked its basic import duty on gold from 7.5 per cent to 12.5 per cent on Friday, as the world's second largest consumer of the precious metal seeks to reduce demand and reduce its trade deficit.
India imports the majority of its gold, putting pressure on the rupee, which had touched a record low earlier in the day.
The tariff increase will raise prices and moderate demand in India, potentially weighing on worldwide pricing. However, it may boost under-the-counter buying and increase demand for precious metals smuggled into the country, according to trade officials.
"The sudden rise in prices could bring down jewellery demand this month," said Prithviraj Kothari, managing director of RiddiSiddhi Bullions.
Following the tariff increase, dealers were giving discounts of up to $40 per ounce off official domestic rates, including the 12.5 per cent import and 3 per cent sales taxes.
The May trade imbalance in India increased to $24.29 billion from $6.53 billion a year ago, while gold imports increased to $6 billion from 678 million.
Short-term gold demand may dip, but long-term demand will stay strong and imports will rise, according to Surendra Mehta, secretary of the India Bullion and Jewellers Association (IBJA).
Following the announcement of the levy, local gold prices jumped roughly 3%, while global prices decreased 0.5 per cent.
According to a Mumbai-based dealer with a worldwide trading organisation, the increase has increased the disparity between local and international prices to more than 15%, which could increase gold smuggling in the country.
"Smuggling was falling after the duty reduction and because of COVID-19 curbs on movement of people. But now it could rise again," the dealer said.
Titan, Kalyan Jewellers, and Tribhovandas Bhimji Zaveri shares were down as much as 4 per cent in the sluggish Mumbai market.
(Source:www.economiuctimes.com)
India imports the majority of its gold, putting pressure on the rupee, which had touched a record low earlier in the day.
The tariff increase will raise prices and moderate demand in India, potentially weighing on worldwide pricing. However, it may boost under-the-counter buying and increase demand for precious metals smuggled into the country, according to trade officials.
"The sudden rise in prices could bring down jewellery demand this month," said Prithviraj Kothari, managing director of RiddiSiddhi Bullions.
Following the tariff increase, dealers were giving discounts of up to $40 per ounce off official domestic rates, including the 12.5 per cent import and 3 per cent sales taxes.
The May trade imbalance in India increased to $24.29 billion from $6.53 billion a year ago, while gold imports increased to $6 billion from 678 million.
Short-term gold demand may dip, but long-term demand will stay strong and imports will rise, according to Surendra Mehta, secretary of the India Bullion and Jewellers Association (IBJA).
Following the announcement of the levy, local gold prices jumped roughly 3%, while global prices decreased 0.5 per cent.
According to a Mumbai-based dealer with a worldwide trading organisation, the increase has increased the disparity between local and international prices to more than 15%, which could increase gold smuggling in the country.
"Smuggling was falling after the duty reduction and because of COVID-19 curbs on movement of people. But now it could rise again," the dealer said.
Titan, Kalyan Jewellers, and Tribhovandas Bhimji Zaveri shares were down as much as 4 per cent in the sluggish Mumbai market.
(Source:www.economiuctimes.com)