Is the Fall Of Gold For Good Or Bad?

The precious metal of Gold, other than its personal use, is also used as a commodity investment. In India people normally buy gold and silver for their personal purposes during weddings, festivals etc. Due to this the gold has become the second largest item to be imported after petroleum. So as to curb the gold import, which was impacting on India’s current account deficit (CAD), the government has taken several steps.

As part of measures to contain the current account deficit, the custom duty on gold has been revised periodically. Prior to January 17, 2012 the gold import duty on standard gold (purity 99.5% and above) was USD 6 per 10 gram (at Rs 50.6 per USD on same day) and on this date the duty was raised to 2% and on August 13, 2013 (last revised) the duty was raised to 10%. Adding to this the government has also applied 80:20 rule, which means that at least a fifth of imported gold is to be exported.

As the gold imports by India, which is the second largest consumer after China, has reduced, it has impacted the international prices also that are falling consistently. Yesterday (on June 02, 2013), the government announced to reduce import tariff value on gold and silver, considering the falling tariff value in the international market. During the last fortnight of May the tariff value on imported gold and silver stood at USD 424 per 10 gram and USD 650 per kg respectively. While after reducing the import tariff value for the gold and silver the new tariff value will come down to USD 408 per 10 grams and USD 617 per kg respectively for the same.

To have control on import of gold and silver, government imposed a custom duty on the precious metal. The custom duty is determined on the basis of import tariff value. The import tariff value is revised fortnightly and it depends on the prices of gold and silver traded in the international market. In Singapore, gold and silver is trading down at USD 1244-45 per ounce and USD 18.7 per ounce respectively.

Taking the above considerations we can say that the price of bullion (gold and silver) in the domestic market is expected to fall, but on the other hand government will not like the import of bullion to increase. Due to government curbs the country's total gold and silver imports have dropped by 40% to USD 33.46 billion for the fiscal year 2013-14, as against USD 55.79 billion during previous year. As the Indian economy has started to show some signs of improvement and as the Indian currency (INR) is strengthening against dollar (USD), we expect the new government to further ease the import duty in the coming days.