India's gold discounts have widened to a record of more than $200 an ounce over international prices, as a sharp surge in domestic prices triggered by a surprise import duty hike has crushed demand.
- The discount on the yellow metal in India, the world's second-biggest consumer, soared to an unprecedented $204 an ounce over official global rates, according to a bullion dealer in Mumbai.
- This comes after the government raised the import duty on gold to 15% from 10.75% earlier this month, sending local prices to all-time highs and prompting buyers to postpone purchases.
- Dealers are offering steep discounts to clear inventories, as jewellers and retail customers stay on the sidelines, expecting prices to ease further.
The duty hike, effective from July 12, was aimed at curbing imports and narrowing the trade deficit. But the move has backfired for now, with domestic demand collapsing. "We have not seen such a wide discount in decades," said a Mumbai-based bullion dealer who declined to be named. "The phones have stopped ringing. Even wedding season buyers are waiting."
The premium or discount on gold in India is calculated based on the difference between the domestic price and the landed cost, which includes the import duty. The landed cost itself has risen sharply due to the duty hike, but domestic prices have surged even more, creating the record discount.
Meanwhile, silver has also seen a similar trend, with discounts widening to over $1 an ounce. Industry officials said that without a reversal in duty or a significant fall in global prices, the discounts could persist. The government has not indicated any rollback, and the next major trigger for demand could be the festival season starting in September.
(This story has been corrected to clarify that the discount is over international prices, not landed cost.)