India gold discounts hit record high after import duty hike

 India’s gold discounts surged to record levels this week after a sharp increase in import duties dampened demand and triggered investor selling, while steady investment demand in China kept bullion premiums firm.

Dealers in India quoted discounts of up to $207 an ounce over official domestic prices this week, including the 15% import duty and 3% sales levies.

This marked a dramatic shift from the previous week, when discounts were capped at $15 an ounce and premiums reached as high as $6.

Import duty hike hits Indian demand

The sharp rise in prices pushed investors to offload holdings, while jewellers and retail buyers largely stayed away from purchases.

Earlier this week, India raised import tariffs on gold and silver to 15% from 6%.

Authorities also tightened rules surrounding duty-free gold imports used for jewellery exports by limiting imports to 100 kilograms per licence.

Domestic gold prices in India traded near 160,500 rupees per 10 grams on Friday.

Prices had climbed to 164,497 rupees earlier in the week, marking the highest level in more than two months.

A Mumbai-based bullion dealer said gold discounts climbed to unusually high levels because demand had “virtually disappeared” while scrap supply increased significantly, as cited in a Reuters report.

The widening discounts reflected weakening consumer sentiment in the world’s second-largest gold consumer market after the policy changes.

Chinese demand offsets Indian weakness

Analysts at ANZ said stronger demand from China could help offset weaker Indian demand following the tariff increase.

“Firmer demand from China will likely counter India's weaker demand after the latter's policy changes,” ANZ said in a note.

In China, bullion traded at premiums of $15 to $20 an ounce over global benchmark prices, broadly unchanged from last week’s premiums of $14 to $20.

Bernard Sin, regional director of Greater China at MKS PAMP, said premiums remained stable due to resilient investment demand and strong industrial buying activity.

“Import restrictions remain a key constraint, though loosening is widely anticipated soon. Industrial stockpiling by solar and electronics firms is particularly aggressive, amplified by the removal of VAT (value-added tax) export rebates,” Sin said, as mentioned in a Reuters report.

The continued industrial demand helped support Chinese premiums despite broader weakness in global bullion prices.

Global gold prices under pressure

Spot gold prices have declined 2.8% so far this week as rising energy prices fuelled inflation concerns and strengthened expectations that interest rates could remain higher for longer.

Market sentiment was also influenced by gains in US equities.

On Thursday, the Dow and the S&P 500 both advanced by roughly three-quarters of a percent.

Across other Asian trading hubs, premiums remained relatively modest.

In Hong Kong, gold traded between par prices and premiums of $2 an ounce.

In Japan, bullion was sold at a discount of $0.50 an ounce, while in Singapore, gold traded at premiums ranging from $1 to $3.30 an ounce.