- Indian gold imports reached just 37.7t in July 2019 – 49% lower than the same month last year
- The domestic gold price was 2.3% higher in July compared to June; 23% higher y-t-d
- The custom duty on gold was unexpectedly raised by 2.5% in the Union Budget on 5th July
- With elevated domestic gold prices and a higher custom duty, the discount in the local gold market reached a peak of US$28/oz in July
- Volatile prices and weak physical demand encouraged healthy gold futures trading on MCX: volumes touched a high of 46.8t in July
No support for consumer demand
Following weak domestic retail demand in June, gold demand suffered a big blow in July: the custom duty on gold was unexpectedly increased by 2.5% to 12.5% in the Union Budget. Demand received no support from the domestic price either. The spot gold price (995 fineness) maintained its positive trajectory and breached the Rs 35,000/10gm level on 19th July – the highest gold price on record. The price finished the month 2.3% higher than at the end of June, and year-to-date has increased 23%. Economic indicators, such as IIP and domestic vehicle sales, also further pointed towards a slowing economy, adding to the woe.
With the elevated domestic gold price and a higher custom duty, there was understandably little demand for gold in July. During the seasonally quiet period for Indian gold demand, the discount in the domestic market widened further, to a peak of US$28/oz in July – the biggest discount since August 2016 (Chart 1).