Gold discounts in India went above $200 an ounce on Wednesday, reaching a new record. This happened because gold prices jumped after the government raised import duties, leading investors to sell their gold in a market where demand was already weak. India increased import taxes on gold and silver to 15% from 6% to reduce imports and protect foreign exchange reserves.
A bullion division head at a Mumbai private bank said discounts in the physical market were so high that they had to double-check prices before making deals. On Wednesday, dealers offered discounts up to $207 an ounce over official prices, including the new taxes, compared to just $17 the day before.
The higher duty made local gold prices rise sharply, so some investors sold their
gold to take profits, even at big discounts. Both dealers asked not to be named because they are not allowed to speak to the media. Gold futures in India, the world’s second largest gold market, jumped 7.2% on Wednesday to 164,497 rupees per 10 grams, the highest in over two months.
Investors were also selling gold ETFs, adding more supply to the market. Retail buyers and jewellers stayed away, which increased selling pressure and pushed discounts even higher, said Ashok Jain, owner of Mumbai gold wholesaler Chenaji Narsinghji.
Dealers also worried that the higher duty could lead to more gold smuggling, as profit margins for grey market operators rose to about 18% from 9%, according to a dealer in Chennai. Grey market operators smuggle gold into India and sell it for cash to avoid taxes, letting them offer gold at lower prices by not paying duties.
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