The Indian government's recent decision to raise import duties on gold, silver and coins has caused notable volatility in the market. On January 22, customs duties increased from 11% to 15%, with rates imposed on gold and silver bullion to ensure consistency. In this article, we dive into the implications of these changes on gold and silver prices, exploring market dynamics and global impacts.
Increasing import duties and their objectives
The Ministry of Finance's decision to raise import duties on gold and silver jewelry and coins aims to counter the recent rise in imports of gold components used in the jewelry industry, such as hooks and clasps. The new duty structure, which includes 10 per cent Basic Customs Duty (BCD) and 5 per cent Agricultural Infrastructure Development Levy (AIDC), seeks to prevent customs duty evasion on these essential items. This measure, exempt from the welfare surcharge, links duties with those applicable to gold and silver bullion.
Import duties on catalysts consumed with precious metals rose to 14.35%, including 10% BCD and 4.35% AIDC. This adjustment is also exempt from the Social Welfare Surcharge (SWS). The goal here is to maintain consistency and limit potential loopholes in duty evasion.
Market trends and impacts on gold and silver prices
India, as the world's second largest consumer of gold, is subject to direct market impacts due to recent policy changes in the sector. The global landscape also contributes to gold price volatility, as we have seen recently. Gold prices witnessed an upward movement in the local futures market, fueled by favorable global signals. The rise was greatly influenced by the weakness of the US dollar and the expected interest rate decisions from various central banks.
Gold, which is priced in dollars, benefits from the weakness of the dollar. Expectations of lower interest rates increase the attractiveness of gold as a safe haven asset. As interest rates fall, the opportunity cost of holding gold decreases, making it more attractive to investors. As per recent updates, MCX Gold showed an upward trend of 0.12%, reaching Rs 61,964 per 10 gram, indicating optimistic sentiment in the market.
In conclusion, the recent adjustments in import duties on gold, silver and coins, along with increased duties on consumable catalysts containing precious metals, demonstrate the government's commitment to maintaining fair market practices. Therefore, these changes may initially impact the industry. However, the broader context of global market trends, especially the weakness of the US dollar and expectations of interest rate decisions, contributes significantly to the ongoing volatility in gold and silver prices.
