Gold Price Forecast Cut by Another Bank

ONE OUNCE of gold in every four entering India is doing so illegally, according to one of the world's top gold market analysts.

Long the world's #1 consumer but most likely overtaken by China in 2012, India has raised import duties sharply over the last 12 months.

"You have a government that is clearly anti-gold in India," said global head of Thomson Reuters GFMS, Philip Klapwijk, at Cape Town's Mining Indaba conference on Monday.

"It is using the duty system to try to hold back demand. This is stimulating the smuggling of gold into the country.

"It may be that at least a quarter of the gold coming into India is coming through unofficial channels," Klapwijk is quoted by Business Day's Allan Secombe.

Senior figures in India's gold market have long warned that higher duties and taxation would risk a revival of gold smuggling in India – a major industry prior to the deregulation beginning in 1992.

The latest duty hike, in January 2013, took the rate of tax on Gold Bullion imports to 6%, with the duty on unrefined gold rising to 5%.

"Comparing demand last year with 2011," Klapwijk continued on Monday – alluding to the drop in official import data –  "we see this rather strange phenomenon that India was the standout for the country where demand collapsed the most. In other parts of the world, they shrugged off the 6% increase in gold prices rather well and in other parts we saw growth in jewellery demand."

India was also "the exception" in terms of so-called scrap gold supplies, with flows of metal for recycling sold by consumers wanting to raise cash rising in spite of a drop elsewhere.

"Much higher Rupee prices for gold teased out a much higher level of scrap," said the Thomson Reuters GFMS boss.