(Kitco News) – India has raised its basic import duty on gold to 12.5% from 7.5% according to the government. India is the world’s second-biggest consumer of precious metals trying to dampen demand and bring down the trade deficit. The local gold prices jumped to an over two-month peak of 52,032 rupees per 10 grams, the highest since April 25th. After the duty announcement, local gold prices rose around 3%, while global prices fell 1%.
India meets most of its gold demand through imports. That has put pressure on the Indian rupee, which hit a record low earlier on Friday. This obviously makes the import costs much higher.
The duty hike should lift prices and moderate demand in India, which could weigh on global prices. But it could stoke under-the-counter buying and drive-up precious metal smuggling into the country, industry sources said.
After the duty hike, dealers were offering a discount of up to $40/oz over official domestic prices and is inclusive of the 12.5% import and 3% sales levies.
The increase in import duty on gold aims to reduce gold imports and ease macro-economic pressure on the Indian rupee, said Somasundaram PR, regional chief executive officer of the World Gold Council’s Indian operations.
Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA) In the short-term gold demand could fall, but in the long-run demand would remain strong and imports would rebound.