-- Posted Tuesday, 17 January 2012 | | Disqus

The government raised the import duty on gold and silver exorbitantly to curb imports of precious metals translating thereby the huge outflow of dollars outside India. In a rare decision, the government raised the import duty to an ad velorem 2% from the existing Rs 300 per 10 grams while the same on silver was raised to 6% from the prevailing Rs 1500 a kg.

Our View: A very bad decision for the jewelry community which has already been reeling under very low sales due to high prices. There will be a lot of lay off’s from the unorganized Indian jewelry sector. Every day in some part of India a jewelry shop gets closed due to lack of sales. The government is aiding such closures by raising the custom duty.

The government’s reason is that a custom duty rise will curb imports and foreign exchange outflows is not justified. Most of the rise in gold demand is due to investment demand in exchange traded funds and not jewelry demand. The higher custom duty has brought cheers to gold and silver investors and tears to jewelers. Irrespective of the rise in custom duty, Indian gold imports will not fall significantly. This move will only increase government revenues and reduce the very high Indian fiscal deficit at the cost of jewelry workers.

Technically Speaking: In the short term physical gold price has a key support at Rs.27200 and as long as gold trades over Rs.27200 it will rise to Rs.28350-29100. There will be a technical break down only below Rs.27200

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Chintan Karnani. Website www.insigniaconsultants.in

-- Posted Tuesday, 17 January 2012 | Digg This Article | Source: GoldSeek.com

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