Gold price in India about to soar again and so will smuggling. Here's why

New Delhi: World Gold Council (WGC) today said hike in import duty on gold will make the precious metal expensive, while cautioning that curbing supply will not be effective in the long run as this is likely to lead to demand being met through unauthorised channels.

“The hike in customs duty on gold from 6 per cent to 8 per cent… is yet another step to limit supply of gold by making it more expensive. Almost all of India’s gold demand is met through imports and this hike will increase the cost of gold for retail customers,” WGC India Managing Director Somasundaram PR said in a statement.

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“The nature of demand at the retail level is such that restricting supply will not be effective in the long run and is likely to lead to non-transparent price premiums in the market and demand being met increasingly through unauthorised channels which will not be positive for either the economy or for society,” Somasundaram said.

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He acknowledged that large current account deficit is unsustainable and needs to be checked, but said that there were number of factors which influence the current account deficit in India and gold is one of them.

WGC India chief said that demand for gold, whether in the form of jewellery or investment (bars and coins), is driven by millions of individuals investing as part of their household savings and is not discretionary spending for consumption.

“People buy gold as a long term investment to protect their wealth and gold also has huge significance socially, emotionally and economically in India,” he observed. Highlighting that India is a significant stakeholder in the gold market with over 20,000 tonnes in the hands of millions of people, Somasundaram advised that policy direction should view gold as a strategic investment asset for India.

“…the long term policy objective must be to monetise the nation’s gold stock to support economic growth,” he added. Late last night, the government increased the customs duty on gold from 6 percent to 8 percent. This is the second hike in the duty in six months as gold imports touched an alarming 162 tonnes in May.

According to WGC data, India imported 860 tonnes of gold in 2012 calendar year. During January-March of 2013, the country imported 215 tonnes.

PTI