On Tuesday, gold prices soared on domestic markets on Tuesday after the Central government raised import duty on precious metals to an all-time high, and a record level of import duty on goods, and gold prices sharply increased.
Bullion prices on the Multi-Commodity Exchange (MCX) gold jumped nearly Rs 11,000 per 10 grams, sparking wild bullion swings in the market right around the country. The strong recovery came soon after the Centre had slapped 15 per cent import duties on gold and silver, to control Indian imports and subsequently stifle pressure on India's foreign exchange reserves after it had imposed 15 per cent tariffs on imports to halt Indian metals.
The move comes on the back of Prime Minister Narendra Modi's worries over ever-increasing import volume and potential implications for the Indian economy. The MCX gold futures surged to one of the largest single-session gains in months after the government’s announcement, according to market data. Bullion at home jumped sharply, betting that imported gold would rocket significantly higher in the months ahead.
They have also said it has immediately sent futures prices and physical market prices soaring when the landed cost of gold has risen due to the increase in import duties. Retail gold prices had skyrocketed in some cities as well, and they had raised some concern among jewellers and investors.
Industry analysts said the move was intended to curtail runaway imports and protect India from a world economy worrying about the prospects of its currency. India has become one of the world’s largest gold consumers and is importing tons of gold each year, often for jewellery, investment, or culture.
New duty increases combined with reduced imports will probably restrict trade volumes in the near term, though demand during festivals and wedding season is likely to remain strong despite the cost increase, analysts said. Gold has long been regarded by Indian families as a mark of affluence and a safe investment. Another global factor has driven up gold prices.
Rising geopolitical tensions in the Middle East, concerns over foreign financial markets and overseas economic uncertainty around global inflation, together with increasing global inflation worries, fed investors’ demand for precious metals worldwide. A weaker rupee versus the US dollar has also supported domestic gold prices.
Jewellery retailers also need to know about this perverted scenario since high prices only have a fleeting effect on customer purchases. However, many retailers here in the world don’t believe the very high rates would erode the fact that consumers would choose gold, a long term investment that many traders argue can withstand the high rates over the long-term.
A handful of bullion groups also cautioned that illegal smuggling would increase with higher import duties, as India has done with customs duties and duties on precious metals, which have risen so sharply historically. The jewellery business will be speaking with the government, and industry officials will now begin to seek their advice on how the new levying regime will affect business operations under gold mines.
Meanwhile, the investors and the commodity takers are scrutinising international markets and the US Federal Reserve conditions, not only as investors and commodity traders, but also with government actions to watch for these bullion price pressures and influence from the policy perspective of other countries.
Analysts predict gold markets will be expected to remain volatile for weeks. There's even a sudden surge in MCX gold prices that demonstrated once again how much policy can move domestic commodity markets in a matter of hours. The sudden spikes in import duties have led to the fallout of the price volatility among traders and consumers, which is also set to contribute to further chaos across India in India’s gold market.
