Although India Gold Import Taxes Tighten, Demand, Prices Keep Up

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For those who invest in physical gold, and this includes a large chunk of Indian and Chinese folks, two recent developments are bound to bring cheer.

From the first few days of August, the gold price has made a strong rally, gaining approximately 8 percent. On Aug. 19, it even hit a two-month high of US $1,384 an ounce.

Further, in India, traders announced yesterday that they would resume gold imports after the country’s top bank clarified a newly passed rule on gold imports.

For traditional buyers, the first piece of news means their holdings in gold just increased in value, investment-wise, while the second means the flow of gold into India will now begin, allowing them to further indulge in their favorite activity uninterrupted – buying gold (the high gold import tax rate be damned!).

According to a Reuters report, the resumption of imports would ease domestic supply and even gold prices. India is at the start of festival and wedding seasons, and China will see some of it too, when traditionally people purchase gold and jewelry. An increase in Indian imports would support benchmark international gold prices.

India has time and again increased import charges on gold – its second-biggest import after oil – in order to reduce its burgeoning trade deficit. On Aug. 13, it did so once again, the third time in 2013, raising it to 10 percent, even banning the import of coins and medallions.

Indian traders had stopped imports on July 22 due to confusion over a certain rule that required importers to re-export at least 20 percent of all imports, known as the 80/20 rule.

Reuters quoted Bachhraj Bamalwa, the director of the All India Gems and Jewelry Trade Federation, as saying once the imports resumed, premiums, too, would come down by about US $30 an ounce on London prices.

Indian analysts, though, feel that the new tax rate may curb imports, but not so the demand for the yellow metal. Some have even hinted at a spurt in gold smuggling incidents due to the low price of gold in countries other than India. In July, before the import tax was hiked for a third time this year, India’s gold imports touched US $2.9 billion in July from US $2.45 billion of the previous month.

Indeed, history has shown laws or tight tax laws cannot thwart Indian and Chinese consumers’ love for physical gold.

UP NEXT: What the latest World Gold Council Report tells us.

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