India to Consider Hike in Import Duty on Gold, silver.

There is a buzz in the market and it is not going away. Traders in Mumbai say they are expecting the Finance Ministry to bring out a revised tariff for gold and silver imports in the near term.

Silver for immediate delivery fell 0.3% to $26.64 an ounce on Monday, after losing 3.2% on November 26. The  $29.36 an ounce price reached on November 9, was the highest level since March 1980.

The world's largest silver-backed exchange traded fund, iShares Silver Trust , said its holdings slipped to 10,711.23 tonne by November 26, from an all-time high of 10,893.68 tonne on November 23.

Analysts said the precious yellow metal is also likely to remain highly volatile. They have pointed to the tensions on the Korean peninsula, which have driven the dollar to a two-month high, eroding demand for the yellow metal.

In London on Friday, silver moved down sharply losing 3% from the previous day. The founder of Hong-Kong based Puru Saxena Wealth Management told a news agency that China needed to be watched, to understand the price movement of both gold and silver, and that silver was over-extended.

Not so in India, where with gold still hovering near record prices, several consumers switched to silver for their jewellery needs, helping the demand for the white metal.

An earlier World Gold Council statement had said that retailers in Gujarat had purchased more than 100 tonnes of silver in the beginning of October 2010, to meet the demand for the festive season.

Of the total sale of gold and silver, which include bars and jewellery, during Diwali, the Indian festival of lights, around 80% accounts for the yellow metal.

The World Gold Council world demand trends report had highlighted the strength in gold jewellery demand. The backdrop of low interest rates, currency instability, sovereign debt and inflation fears is gold positive, the report had said.

``Silver has been moving in tandem with gold, despite its weak fundamentals. As and when a correction takes place, silver will fall rather sharply,'' said Manikbhai Zaverimal, a bullion trader in Mumbai.

According to a poll conducted by the All India Gems and Jewellery Federation (GJF), almost 53% of GJF members said business was up 25-45% in value terms as compared to the previous year, while 25% said business was the same as earlier.

Vinod Hayagriv, Federation chairman said that although a quarter of the business houses (in the poll) lost between 15% and 25% in quantity terms, as compared to earlier years due to higher gold prices, silver was a major sell-out.

An official of the Gem & Jewellery Trade Council of India, said that there has been a sizeable shift from gold to silver due to high prices of gold. "People are buying less quantity of gold and more silver bars as they have started considering silver as one of the instruments of investments,'' the official said.

Silver is getting used to the levels above the key 25 support zone, he added. Moreover, the elevated prices of bullion have set the government thinking about hiking the import duty on the precious metals.

For some time now, a strong case for an upward revision in Customs duty on imported gold has been emerging. The Government Exchequer is expected to mop up an additional revenue of Rs 8 000 000 000 ($173.8m) on the import of gold alone, traders said.

In the last eight months, gold prices have spurted by over 30%, given the firm international prices. At the time of the last Union Budget, gold prices were around Rs 16,500 per 10 gram (up from Rs 14,000 a year earlier). As a result, Customs duty on gold was raised to Rs 300 per 10 gram from the earlier Rs 200 per 10 gram.

After weak protests by a section of traders - essentially speculators on the bourses - the issue did die down. Both traders and consumers accepted the new reality of a slightly higher duty. Is it time for a hike again?

Source : mineweb.com