Top Gold-Buying Market India Increased Taxes on Gold: What Now?
A Closer Look at the Precious Metal Cross-Commodity Spreads
Gold imports in India
As precious metal prices have rallied in 2016 so far, the demand for gold in India, the largest gold-buying market, has witnessed a downfall. Record-high discounts on international gold prices have been traded since the beginning of the year. The discount amounts have been wavering between $35–$40 per ounce of gold.
The Indian government is trying to curb the physical gold demand in the country, recycling the precious metal instead. Gold represents about one-fourth of India’s current account deficit. On an average, the country has an annual consumption of 900–1,000 tons, which is met by imports.
Promoting gold bonds
While presenting the annual federal budget on Monday, February 29, India’s government decided to add a 1% sales tax to all gold jewelry sold in India. This resulted in a strike by the country’s jewelers. Duties on gold dore (a semi-pure alloy of gold and silver) imports were raised by 0.75% to 8.75% for those operating in a special economic zone in the north of the country. For refiners outside this economic zone, the duty was raised by half a point to 9.5%.
The repeated attempts by the Indian government to curb precious metal imports suggest that it is serious about reducing the current account deficit. This also indicates that it is keen on promoting the recent gold bond initiatives.
The changes in imports by India can have a significant impact on the price of gold. These changes indirectly affect the investments in gold-based funds like the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust ETF (IAU). The mining stocks that concentrate on gold for their price changes include Gold Fields (GFI), Barrick Gold (ABX), and IamGold (IAG).
Browse this series on Market Realist: