New Delhi: Government's move to hike import duty on gold may do little to curb its demand and make it an even more sought after commodity in the near-term, pushing up the price of the precious metal, say industry experts.
With spiralling gold imports putting huge pressure on the current account deficit, government last week hiked the import duty on the metal to 8 percent, up by 2 percent, in a bid to rein in demand.
Post the announcement, however, there was "mad rush" to buy gold as traders expected short supplies, said Harish Galipelli, Head, Commodity and Currency Derivaties at JRG Wealth Management Ltd.
"We, as a nation, are sentimental about gold. So, steps to curb gold imports are not likely to do much but in fact might raise its demand and it was clearly shown by the prices hitting 5-week high post the announcement hiking gold imports," Galipelli said.
On June 6 and 7, the two consecutive days after import duty hike, gold prices in the national capital advanced by a total Rs 640 to touch 5-week high of Rs 28,300 per 10 gm.
Geojit Comtrade's Wholetime Director C P Krishnan said however that in the medium-to-near term, this move -- coupled with RBI's decision to extend the restrictions on gold import to other agencies in addition to banks -- would make trading in the metal less speculative.
"The impact of the gold duty cut is that the demand for the metal will shrunk. Anticipation and speculation in gold will come down... Now, gold will not remain attractive as an investment option," he said.
The increase in duty will also have an impact on international gold prices because India is its largest consumer, and curb on Indian gold imports would "certainly hit its global demand", he added.
But, Krishnan said that gold will continue to remain attractive for individual buyers, and thus prices will soar in near-term.
On gold's outlook this year, Galipelli said it is going to move in the broad range of Rs 23,000-28,000 per 10 grams and USD 1,300-1,480 an ounce in international markets.
Krishnan expects that gold prices overseas are likely to hit USD 1,500 an ounce by 2014.
The hike, the second in six months, was aimed at curbing import of gold which is mainly responsible for rise in CAD impacting on the country's foreign exchange reserves as well as the rupee value.
The CAD, which is a difference between inflow and outflow of foreign currency, touched a historic high of 6.7 of GDP in the quarter ending December 2012.
However, some industry experts believe that gold duty hike may increase its smuggling.
Earlier last week, World Gold Council (WGC) said the 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 percent to 8 percent...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.
Former chairman of the All India Gems & Jewellery Trade Federation (GJF), Bachhraj Bamalwa had said on Friday: "All these restrictions on imports will not affect the gold demand but will lead to increased smuggling.
"In 2012, about 200 tonne gold was smuggled into the country and according to industry estimates this year it may rise to 300 tonne, which is 30 percent of the total imports."
GJF's Chairman Haresh Soni said, meanwhile, the industry body has started communication with the government and will meet the Finance Minister next week on this regard.
"We want to discuss the issue with the Finance Ministry as the industry as a whole will suffer. The import was more when the duty was 6 percent than when it was 4 percent. With rise in smuggling the government will also lose out on revenue," he added.