The Indian government has significantly slashed import taxes on gold and silver, a move analysts say could boost global demand for gold and end the four-day losing streak of spot gold. Precious metals prices strongly rebounded today, with spot gold rising 0.54% to $2,409.16 per ounce and spot silver up 0.38% to $29.225 per ounce.
On Tuesday, the Indian government announced a reduction in import taxes on gold and silver from 15% to 6%, while the import taxes on platinum and palladium were reduced from 15.4% to 6.4%. This measure is likely to stimulate retail demand and help curb smuggling activities in the world’s second-largest gold and silver consumer market. Additionally, Indian Finance Minister Nirmala Sitharaman stated that the tax cuts were aimed at increasing the added value of domestic gold and precious metal jewelry.
Following the announcement, gold prices in rupee terms fell by 6% to their lowest level in three months.
World Gold Council’s India CEO, Sach Jain, stated that this tax reduction is “a massive step in the right direction.” It will reduce the incentives for gold smuggling and create a level playing field for honest industry stakeholders. Vignaharta Gold founder and chairman Mahendra Luniya noted that lowering import duties could significantly boost the gold industry, adding that lower prices could drive consumer demand and sales volume, ultimately enhancing revenue and profits for gold-related companies.
Despite the significant rise in gold prices, India’s gold consumption demand has remained stable. In the first five months of this year, India’s gold imports increased by 26% year-on-year to 230 tons, driven by India’s structural economic transformation and rising per capita income.
Commodity strategists Soni Kumari and Daniel Hynes at ANZ Bank pointed out that per capita income in India is expected to increase by more than 60% to $4,000 by 2030, which will further support physical gold demand. Additionally, the Reserve Bank of India has actively increased its gold reserves, purchasing 37 tons of gold in the first half of the year, making it the world’s second-largest gold buyer. Based on these analyses, they predict that gold prices will rise to $2,500 per ounce by the end of this year.
Apart from the positive news from India, another key catalyst for the bullish outlook on gold prices is the expected interest rate cuts by the Federal Reserve. The market now anticipates rate cuts starting in September with two rate cuts within the year. The U.S. Consumer Price Index (CPI) for June showed a cooling in inflation, and a recent speech by the Federal Reserve Chairman suggested that second-quarter economic data had boosted policymakers’ confidence in achieving the 2% inflation target, paving the way for imminent rate cuts.
