Gold prices down by ₹450/g: Here we decode why
What's the story
Gold prices in the Indian market have fallen by over ₹450 per gram. This comes after the Indian government more than doubled the customs duty from 6% to 15% on May 13. The move was aimed at curbing imports and controlling foreign exchange outgo. It has led to a discount being offered to boost demand, which had been affected by Prime Minister Narendra Modi's appeal against gold purchases for a year.
Market response
Dealers offloading imported inventory
Kavita Chacko, the Research Head - India at the World Gold Council (WGC), said domestic gold prices are now trading at a steep discount to official prices. This has widened from an average of $14/oz before the duty hike to almost $150/oz (₹462/g) now. Bullion dealers may have sold off their inventory imported at lower import duty rates, further increasing market supply.
Historical context
Previous instances of duty hikes
Chacko noted that previous import duty hikes in 2019 and 2022 also resulted in domestic market discounts. However, this instance is much more pronounced due to the scale of the increase. The government raised import duties on gold, silver, and platinum on May 13 to discourage shipments into India and control foreign exchange outgo.
Retail impact
Jewelers passing on benefits to consumers
CA Surendra Mehta, spokesperson of Mumbai-based Indian Bullion and Jewellers Association (IBJA), said the duty change has led to those who imported at the lower 6% duty offloading their stocks at a discount. N Anantha Padmanabhan, Managing Director of Chennai-based NAC Jewellers, said jewelers are passing on benefits to consumers by even cutting making charges to spur demand. However, he added that there is virtually no demand.