Gold Demand To Rise as Government Increase Import Duty

17 January 2012 - Which Way to Pay

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Gold Demand To Rise as Government Increase Import Duty

Demand for gold jewellery in India is thought to have risen between 5 and 7 percent in 2011 and this gold rush is set to continue with a further 10 to 15 percent rise to be seen this year on a forecast that the price of gold will fall in correlation to the Rupee. The head of retail giant Gitanjali Gems, Mehul Choksi, said on Sunday "For the whole year we will end up with a 5 percent to 7 percent volume growth.  In 2012 I expect, as the prices of gold come down, it will once again catch up the momentum and will grow in volume by 10 percent to 15 percent. “ This increase in demand is expected to help boost revenues as Gitanjali Gems expect to see its revenues boosted by about 35% in the new financial year which will start in March from the $2 billion made in 2012 so far, Choksi later noted.

Contradictory to this forecast global financial firm BNP Paribas said that India, where demand for gold occupies more than 60% of the total demand, slowed down on its purchasing of gold. Furthermore, with its economy expected to group 6.5% for 2012, it is inevitable that this will directly affect the country’s appetite for the precious metal. Today India’s government made the decision to change the import duty on gold to 2% of value from the earlier flat 300 Rupees per 10 grams which could potentially double duties on gold. The government raised import duty on gold and silver to reign in import of the metals translating as a result a huge outflow of dollar outside of India. Rajesh Mehta, Chairman of Rajesh Exports, has said “We could have done without this hike.” This rise is likely to have consequences and Kishore Narne of Anand Rathis Commodities fears that this hike will impact India’s trade deficit and the rupee stating, “if you remove gold from India’s trade deficit, you will have a significant difference; probably a surplus also in some months.” We must consider that in the third quarter of 2011 demand for the precious metal dropped 26 % because of price swings and a weaker rupee. With the situation in Europe bound to further affect the global markets, the Rupee could experience further loses, making gold buying more costly for India’s residents.

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