While the goldprice on the world spot market is moving sideways, the price of gold in India is rapidly moving higher. The precious metal is in short supply, causing an upward pressure on the price of gold. To get your hands on some physical gold in India, you have to pay a premium of more than 20% nowadays. That’s twice the import duty of 10% on gold bars. Under normal circumstances the premiums on gold are very close to the import duty, as you can see from the graph below.
In August, the import duty on gold bars was raised from 8% to 10%. But since October gold premiums started to rise rapidly beyond that percentage. The following chart from Chartsrus shows the movement in the Indian gold market.
Gold close to record high in India
The rising premiums and a weak rupee combined drive gold prices in India to record high levels. The yellow line in the graph below represents the gold price on the Indian gold market. Notice the difference between this yellow line and the blue line, which represents the gold price in dollars, converted to rupees. The difference is what we see on the red line in the bottom graph and is the margin Indian buyers pay at the jewelry store or to gold traders.
‘War on Gold’
India is still waging a War on Gold, because gold shows the weakness in the currency. Massive imports of gold result in a substantial current account deficit, putting downward pressure on the value of the Indian rupee. The Indian government and central bank try to discourage people from buying gold by increasing import duties, restricting the maximum import quantities and banning the import of gold coins altogether.
Gold premiums in India rise to a record 20% (Source: Goldchartsrus.com)
