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Gold Prices Slip as India's New BJP Government "Gets Set to Ease" Import Duty & 80:20 Rule

GOLD PRICES slipped below a tight trading range lunchtime Wednesday in London, even as news broke that the new government of India – formerly the world's No.1 consumer market – is looking to ease gold import restrictions.
 
Imposed last summer to cut India's current account deficit and boost the Rupee from record lows, the gold bullion rules have become a major political issue in India, but weren't mentioned in either the ruling Congress or newly-elected BJP's manifestos.
 
"[Prime-minister elect Narendra] Modi has committed to us that he'll come out with a solution," Reuters quotes Kumar Jain of the Mumbai Jewellers Association.
 
The BJP leader spoke against the gold import curbs several times during India's election campaign, and Modi received the backing of jewelry industry leaders back in September.
 
"We expect some good news to come in July," says Jain, "either by lowering of [10%] import duty or easing of 80/20 rule." 
 
As the India rumors were published however, gold prices slipped out of a tight $4 per ounce range, dropping towards Tuesday's 1-week lows at $1289.
 
On top of 10% import duty, gold prices in India have risen up to $170 per ounce above the global benchmark of London settlement, retreating to $100 recently as expectations of Modi's landslide victory dimmed local demand in anticipation of easier rules.
 
Last summer's 80:20 rule from the independent Reserve Bank of India effectively closed imports to India – which has no domestic mine output, and which saw record inflows after the Spring 2013 gold price crash – by forcing 20% of new shipments to be re-exported before the other 80% can be released from Customs.
 
Officials from the Reserve Bank of India met Monday with major gold-importing banks, Reuters' sources say. Other officials quoted anonymously by the news-wire say reducing gold smuggling caused by the import curbs is now a priority.
 
"The recent consolidation [in gold prices] appears set to continue," says technical chart analysis from London market-maker Scotia Mocatta's New York team, "despite a persistent recurrence of intraday breaks below the 100-day Moving Average."
 
Gold prices have now averaged $1291 per ounce at the last 100 London PM Fixes, the global benchmark.
 
"We await a breakout," says Scotia.
 
"Gold has extended its fall this week towards trendline support," says fellow London market-maker Credit Suisse in its technical price analysis, "now showing at $1283.
 
What Credit Suisse calls "buying interest" from major consumer centers such as India "has shown ahead of [that price] and seen a small bounce."
 
A change to India's anti-gold policies "is inevitable" said Albert Cheng, head of the Far East region for market-development organization the World Gold Council, on Tuesday, "because Modi seems to be pro-gold.
 
"It's just a matter of when he is going to do it."

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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