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India's New 3% GST 'Positive' for Gold Market

World No.2 gold market gets clarity and simplication...
 
GOLD MARKET development group the World Gold Council believes India's new 3% General Sales Tax will support the country's gold demand, because it "should boost India's economy."
 
The last 5 years have seen changes import and excise duties, new rules and outright campaigns to deter gold demand in the world's second-largest gold consumer market, culminating with the shock  demonetization of 86% of the country's cash in circulation last November.
 
But the government of Narendra Modi is now set to apply the 3% rate decided last week by the GST Committee starting 1 July.
 
"The simplified taxation structure will make the gold supply chain more transparent and efficient," says the World Gold Council.
 
"At 3%, the GST rate was lower than the industry had feared. Industry reaction has been positive...[even though] the overall tax rate consumers face is likely to increase slightly." 
 
Gold dealers in the United Arab Emirates – whose government said they want a change of policy in neighboring Qatar, not regime change – are expecting  a brief rise in demand to buy gold after India announced its new GST, local press reports.
 
"With gold prices in India set to go up slightly following the rollout of GST next month, the UAE's thriving jewellery trade will emerge more attractive vis-a-vis India," the Khaleej Times quotes Chandu Siroya, vice-chair of the Dubai Gold & Jewellery Group.
 
India and the Middle East now account for 35% of global gold demand between them, said a presentation from analyst Philip Klapwijk at the Asia-Pacific Precious Metals Conference in Singapore this week – up from 22% at the end of the 1980s.
Pie charts of global gold fabrication demand by region, 1989 vs 2016. Source: Precious Metals Insights
 
But any demand gains could prove short-lived, Dubai dealer say, because the UAE and other Gulf states are pushing for a joint 5% GST of their own, due to apply from January next year.
 
Indian gold prices have slipped to a discount below global quotes, reports LiveMint, with demand to buy gold "faltering" while jewellers hold "ample" inventories, built before last weekend's decision on GST.
 
Indian gold dealers offered discounts as deep as $3.50 per ounce compared to import-paid prices, Reuters adds, the largest incentive offered to buyers since the end of 2016.
 
June through August are typically soft periods for Indian consumer gold demand, as Hindu calendars contain no 'auspicious days' for marriage ceremonies.
 
"Gold markets in Asia have been quiet," Reuters quotes Cameron Alexander, an analyst at the Thomson Reuters GFMS consultancy.
 
"[This week's] rise in price did encourage destocking in some markets...Purchases have been slow."
 
Gold prices in China – now the No.1 consumer market – rallied Thursday in Shanghai after falling against the rising Yuan, boosted by the Beijing authorities action in the country's money markets.
 
That helped Chinese gold premiums over London quotes rise to $8.40 per ounce, almost $2 above Wednesday's 6-week low but still $1 beneath the typical incentive offered to new bullion imports into the No.1 gold consumer nation.

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