Gold Investment Turns More Attractive - India Hikes Import Duty By 400%

Gold Investment seems to have become hugely attractive; business in Gold Bullion has become more lucrative overnight. India seems to have taken the right steps in the wrong direction. On Wednesday night the Indian government hiked the import duty on the metal to 8%, up by 33% from the earlier 6% in a bid to rein in Gold demand. “The import duty on gold has increased from 6% to 8%,” Revenue Secretary Sumit Bose told PTI. The world’s top consumer of Gold bullion is trying to curb a record high trade deficit by limiting overseas purchases of the yellow metal, but the market demand seems to be rising with each duty hike. In less than 12 months, India has hiked the Import duty on Gold by a mind blowing 400% – from 2% to 8% now.

Will these restrictions actually curb India’s Gold Passion & Gold investment demand?

It is the second hike on the import duty in less than five months; the country’s imports surged in May. India imported around 162 tons of Gold Bullion in May, much more than expected and making further measures from the government to curb Gold Investment demand. Gold imports touched a staggering figure of USD 15 billion in the last two months.

The CAD - Current Account Deficit, which is a difference between inflow and outflow of foreign currency, touched a historic high of 6.7 of GDP in the quarter ending December 2012. It is likely to have reached in the range of 5% during 2012-13, much above the RBI’s comfort level of 2.5%. Worried over the deteriorating CAD position, the government had in January increased the import duty on gold from 4% to 6%. The Finance Ministry’s action to raise duty follows curbs announced by the RBI - Reserve Bank on India on import of gold by banks as well as other entities.

Restrictions making Gold investment in India more desirable:

Ever since India started hiking the Gold Import duty, Gold Imports have actually increased by leaps and bounds as proven by WGC data from the last 10 months. To add to the woes, the duty hikes have made Gold smuggling more lucrative. It seems that all the steps taken by India to curb Gold investment demand have only rebounded. These steps only make Gold more costly, which adds to the buying craze on sharp price declines like the one seen in April. If returns on investments take a hit, only then will investments get thinner, and not if returns get healthier. As of now, India seems to be doing all in its power to make Gold investment sweeter and desirable. MCX Gold Futures for August delivery were trading around 27,150 Rupees and sharply shot up to Rs. 27,847 (up 2.50%) after the Duty hike announcement.