Gold demand in India, the world’s biggest user, is poised to climb after the government unexpectedly refrained from raising import taxes and as prices headed for a fifth monthly decline.
Finance Minister Palaniappan Chidambaram refrained from boosting the tax from 6 percent after it was tripled in the past year to curb demand. All India Gems & Jewellery Trade Federation, a grouping of retailers, traders and exporters, had predicted the duty to climb to 8 percent. The “status quo” on taxes is a good sign for the industry and will attract people to gold, said Bachhraj Bamalwa, chairman of the federation.
India has boosted taxes from as low as 2 percent in January last year after the current-account shortfall, the broadest measure of trade, widened to an all-time high and the rupee slumped to a record. Overseas purchases dropped 11 percent last year from a record in 2011, the World Gold Council estimates. Imports probably slumped as much as 50 percent to 40 tons this month from January, Bamalwa said yesterday.
“If the duties were raised further imports would have become unviable,” said Rajesh Mehta, chairman of Rajesh Exports Ltd., India’s biggest gold jewelry exporter. “Demand has been improving because of a price fall and this will give it a further boost.”
Gold has advanced for 12 successive years, driven at least in part by demand from investors looking for a store of wealth amid concern about inflation. The precious metal has lost 5.2 percent this year as economic data improved, equities advanced and some U.S. central bankers sought more flexibility in their stimulus program. The cycle for prices has probably turned as the U.S. recovery gathers speed, Goldman Sachs Group Inc. said on Feb. 25, citing a collapse in investor holdings.
“Gold prices have eased in the overseas market, making gold available at cheaper rate on domestic bourses,” Badruddin Khan, a vice president at Indiabulls Commodities Pvt. Ltd, said. “Raising import duty in the current scenario may not have been a good idea to control the demand.”
The government’s decision to introduce inflation-linked bonds and certificates, also announced in today federal budget, may make investments in gold less attractive and curb imports for investments, he said.
Gold has fallen 4.4 percent this month, set for the longest run of monthly losses since 1997, and was at $1,588.50 an ounce at 4:53 p.m. in Mumbai. Gold for April delivery dropped 0.3 percent to 29,662 rupees per 10 grams ($1,696.662 an ounce) on the Multi Commodity Exchange of India Ltd.
Titan Industries Ltd., the largest gold retailer, led a rally among jewelry makers in Mumbai on speculation demand will increase. Titan rose 2.3 percent to 260.90 rupees, Rajesh Exports gained 0.3 percent to 126.40 rupees, Tribhovandas Bhimji Zaveri Ltd. gained 0.5 percent to 190.65 rupees and Gitanjali Gems Ltd. advanced 1.6 percent to 581.80 rupees.
India’s gold imports fell to 860 tons last year from an all-time high of 969 tons in 2011, according to the gold council. Demand for jewelry and investment fell to 864.2 tons in 2012, the second straight year of decline, it said.