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India has raised its basic import duty on gold, pushing domestic prices sharply higher today. The basic import duty on yellow metal has been hiked to 12.5% from 7.5%, the government said in a notification. This is a reversal of last year when India cut the tax to 7.5% in budget. Gold also attracts 3% GST in India. India is the second biggest importer of gold in the world. India meets most of its gold demand through imports, which were putting pressure on the rupee which today hit a record low of 79 against the US dollar.

On MCX, gold rates surged today nearly 3% to 52032 per 10 gram. In contrast, gold prices were lower today in global markets.

Official imports of gold into India remained strong at 98 tonnes in May, significantly higher than official imports in April this year (27.1 tonnes) and May 2021 (11.4 tonnes), according to World Gold Council.

India’s gold purchases had been picking up in the past year after buying slumped during the pandemic. The country had imported the most gold in a decade in 2021, according to the World Gold Council.

Indian monthly official imports from January 2019 to May 2022

Source: World Gold Council
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Source: World Gold Council

Indians consider gold to be auspicious and a store of value, and the country relies entirely on imports to meet demand.

“COMEX gold trades weaker near $1805/oz and has tested the lowest level since mid-May. Gold is pressurized by monetary tightening stance of major central banks, sharp correction in commodity prices and continuing ETF outflows," said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.

"However, supporting price are global growth worries and correction in bond yields and persisting inflation concerns. Gold has been shifting lower in last few sessions indicating weaker sentiment however we need to see if it manages to hold near the key $1800/oz level," he added.

According to a Bloomberg survey, India’s current account account deficit - the broadest measure of trade - is expected to probably widen to 2.9% of gross domestic product in the fiscal year ending March 31, nearly double the level seen in the previous year.

According to World Gold Council, retail demand in India remained strong during the first three weeks of the May due to wedding- and festival-related purchases. Dealers in domestic markets charged a premium of $4-5/oz over official prices by the third week of May.

(With Agency Inputs)

 

 

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