Gold Import Duty Hike May Affect Jewelry Sales, But Won't Dampen Investment Demand

Government Hikes Import Duty on Gold and Silver, Experts Weigh In

The Indian government has taken a significant step to curb demand for gold and silver by hiking import duty on these precious metals. Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, shares his expert view on the implications of this move.

Gold prices have immediately increased following the hike in import duty, as they are now closer to import parity. Banerjee believes that investment demand for gold and silver will not be impacted by this move, but may actually be encouraged. This is because investment demand is directly proportional to the increase in prices, and people tend to buy assets that appreciate in value.

However, consumption demand, particularly for jewelry, is expected to take a hit. The demand for jewelry has already been sluggish, and this import duty hike may further reduce it. Additionally, the Prime Minister's appeal to people to avoid buying gold and silver for patriotic reasons has already led to a decline in demand.

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Banerjee suggests that the government's move to hike import duty may not have the desired effect of curbing demand. He believes that consumption demand is indirectly proportional to an upward price increase, and investment demand will remain constant due to the appeal of gold and silver as assets.

Banerjee also notes that the impact of the import duty hike on demand will depend on the overall gold price trajectory in the next 6-7 months. If gold prices remain stable, jewelry demand may improve, but investment demand may remain flat.

Regarding gold ETFs, Banerjee believes that they will not be impacted by the import duty hike. However, investors holding gold ETFs will benefit from the price increase.

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Banerjee also addresses the concern of gold smuggling, stating that while the government is aware of the potential for arbitrage, these measures are temporary and may be removed once the war in West Asia comes to an end.

Finally, Banerjee shares his outlook on gold and silver in general, stating that he is structurally bullish on these assets. He believes that the trend of de-dollarisation and de-globalisation will continue, leading to higher prices for gold and silver in dollar terms. Over the next 3-4 years, Banerjee expects gold and silver prices to reach $7,500 to $8,000, conservatively.