Gold jewellery, bar prices set to go up Experts See Dip In Demand For Metal

New Delhi: Gold jewellery and bars are set to get more expensive with the government announcing a steep increase in the import duty of the yellow metal on Monday. The move to slap an import duty of 6% was triggered by the need to rein in the widening current account deficit and help better macro-economic management. Import duty was doubled to 4% in March last year in an attempt to temper the surge in gold imports. 

    While some amount of the increase has already been factored in gold prices in anticipation of the duty hike, experts say a further increase is inevitable, which may lead to a dip in demand in the near term. "People who had to purchase for marriages have already done so. At least in the next three to six months, prices will remain high leading to a dip in demand," said Jayant Manglik, president, retail distribution, Religare Broking. 
    Worried over the surge in gold imports, the government had earlier this month indicated the possibility of unveiling measures to make gold imports costly. This had led to a sharp increase in the import of the yellow metal in the last three weeks. According to market estimates, import of gold increased three fold between the last week of December and the first week of January. 
    "Imports increased to 60-70 tonnes since December last week to January first week. This was higher than imports we have seen in any normal two week period which is around 15-20 tonnes," said Prithviraj Kothari, director, RiddhiSiddhi Bullions. Gold prices, which had already shot up in anticipation of the duty hike, rose by over Rs 300 in the capital on Monday to Rs 31,250 per 10 grams after the government announced the measures. Global price of gold also increased 0.03% to $1,687 an ounce, data showed. Experts say the import duty hike may increase the risks of illegal trade of the precious metal. Analysts said the impact on demand would be greater for gold in investment form as against physical gold. "In the broader picture, the duty hike will be a negative for gold demand as well as price. People are no longer sure on how gold prices will remain in the long term," said Gnanasekhar Thiagarajan, director, Commtrendz Research, an advisory firm. 
    With the rupee expected to appreciate, analysts say prices are likely to stabilize in the second half of the current financial year. The Indian currency stood at 53.77 against the dollar on Monday. According to market estimates, gold prices are likely to hover in the range of Rs 29,000-Rs 32,000 per 10 grams in the near term. Experts said demand for gold is likely to moderate as the world economy shows signs of stabilizing. "The major world economies are currently looking good. Gold demand will not pick up unless there is uncertainty in the market," Thiagarajan added. Despite an increase in duty last year, gold demand in India increased by 9% to 223.1 tonnes in the September quarter.

Fwd: Import duty up, gold, platinum now dearer

Govt Also Eases Deposit Norms To Curb Demand

New Delhi: The government on Monday sought to dampen the demand for precious metals by jacking up the import duty on gold and platinum to make them more expensive and help manage the economy better. Simultaneously, the Centre stepped in to move the yellow metal lying in lockers to revamp gold deposit schemes from banks as part of the plan to stem the demand. 
    The immediate pinch will be felt due to an increase in customs duty from 4% to 6%, although the move may spark illegal flow of the precious metals into the market. Traders said gold price, which went up by Rs 315 to Rs 31,250 per 10 grams immediately after the finance ministry announced the decision on Monday afternoon, will rise in the coming days as the market factors in the impact. 
    "The two percentage point increase will translate into a proportionate rise in the price of jewellery and bars," Jayant Manglik, president, retail distribution at Religare Broking, said. 
    Within a span of a year, gold, which attracted around 1% import duty, has seen a spike in levies as the government grapples with a widening trade and current account deficit (CAD), which is putting pressure on the rupee. CAD is the difference between exports and imports, net FDI and FII flows, remittances and overseas borrowings by local companies. While exports have shrunk, imports have been steady due to runaway appetite for gold and the steady demand for edible oil and crude petroleum. In fact, the widening trade deficit has negated the impact of higher inflows from other sources. As a result, the rupee has remained under pressure, and continues to hover around Rs 54-55 to a dollar despite the government's efforts to revive investor sentiment and attract overseas funds. 
    "It is difficult to establish the impact (of the tax) on CAD and by how much it will come down, but there will be some moderation in gold demand," economic affairs secretary Arvind Mayaram told reporters. Though import duty has risen, gold demand, after witnessing moderation, has been on a rising trajectory, creating a policy challenge as the government battles the threat of aratings downgrade. 
LOSING GLITTER 
    The hike in gold customs duty from 4% to 6% will translate into a proportionate rise in prices of jewellery and bars 
    The move may spark illegal flow of gold into the market 
    Govt trying to encourage people to earn income on idle assets lying in bank lockers 
    Revamped gold deposit scheme will see minimum quantity deposited reduced from earlier 200gm, while 
minimum tenure will be cut from 3 years to 6 months 
    But need to melt jewellery 
may dampen interest