Gold discount in India hits highest in 10 months as prices near record high

 

• After posting double digit returns in 2022, gold prices continued their strong performance in January.

Gold discount in India rose to the highest level in 10 months as record high prices hit domestic sales. Reuters reported that dealers offered discounts of $42 an ounce over official domestic prices last week, compared with discounts of $24 the previous week. As India imports most of its bullion requirement, domestic prices are inclusive of 15% import duty and 3% GST. February gold futures on MCX had hit a high of ₹57,125 per 10 grams last week, before closing at ₹56,900 at the end of the week.

India's budget will be presented on February 1 and industry has urged the government to cut import duty on the precious metal.

“The government increased the import duty on gold to 15% in July 2022. There has been a sharp decline in imports. Calendar year 2022 saw a decline in imports – this was mainly due to the increase in import duty as well as rising gold prices,” said Colin Shah, MD, Cama Jewellery.

After posting double-digit returns in 2022, gold continued its strong run in January. In the month of January alone, gold prices have increased by about 3-4 per cent. It is up nearly 14% compared to the November low, mainly driven by weakness in the US dollar and softening US bond yields. Fears of a recession in the West are strengthening gold, says Mr. Shah.

"Going ahead, we expect some more upside in gold prices. Domestically, gold prices are expected to test ₹58,000-59,000 levels. On global front, prices are expected to touch earlier highs and It is likely to trade in the range of $2060-2100./oz," he added.

In the global markets, the price was hovering near $1,928 today. Traders remained cautious ahead of the Fed's two-day policy meeting scheduled for Jan. 31-Feb. 1.

The Fed is widely expected to slow the pace of rate hikes to 25 basis points (bps) from the 50 bps announced in December. Gold benefits from lower interest rates because it lowers the opportunity cost of holding bullion.

Recent economic data has also been supportive for the precious metal. Data released on Friday showed US consumer spending fell in December which could give the Fed more room to slow the pace of its rate hikes further.