Gold Discounts in India Surge Past $200 per Ounce Amid Profit-Taking Activity

Gold Discounts in India Reach Record High

India on Wednesday raised import tariffs on gold and silver to 15% from 6% as part of efforts to curb overseas purchases of the metals and ease pressure on the country's foreign exchange reserves. This sudden increase in import duties triggered a sharp rise in local gold prices, prompting investors to cash in on gains by offloading gold, even at heavy discounts.

As a result, gold discounts in India widened to a record of more than $200 an ounce on Wednesday. Dealers in India offered discounts of up to $207 an ounce over official domestic prices on Wednesday, inclusive of 15% import and 3% sales levies, up from the $17 an ounce on Tuesday. The surge in prices and subsequent investor selling created a weak demand environment, leading to unusually high discounts.

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The duty hike also triggered a sharp rise in local gold prices, with gold futures in the world's second-biggest consuming market jumping 7.2% on Wednesday to 164,497 rupees per 10 grams, the highest level in more than two months. This surge in prices led to investors booking profits in gold exchange-traded funds (ETFs), adding to supply in the market.

Retail buyers and jewellers stayed on the sidelines, increasing selling pressure and pushing discounts to unusually high levels. According to Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji, retail buyers and jewellers were hesitant to purchase gold at current prices, contributing to the high discounts.

Bullion dealers also expressed concern that the latest duty hike could boost smuggling, as it widened margins for grey-market operators to about 18%, from around 9%. Grey market operators smuggle gold from overseas and sell it for cash to avoid duties, allowing them to offer it at discounts to market prices by evading taxes.