War on Gold: India Raises Import Duties

So the Indian government will make good their threat to inhibit gold imports.

Writes the Mineweb,

Gold eased on Friday, caught up in its largest weekly decline in three months, after top consumer India said it would double import duties on bullion and upbeat U.S. data this week fed optimism over the global economy, boosting risk appetite.

The bullion market relies heavily on Indian jewellery demand. Last year, the country imported a record 969 tonnes of metal and in January, raised the import duty by 90 pecent. Finance Minister Pranab Mukherjee said the strong growth in imports had played a key role in widening India's current account deficit…

Investors hold a near-record amount of gold now in exchange-traded products and have stepped up their holdings of gold through U.S. futures so far in 2012, meaning the market could be subject to steeper sell-offs by disenchanted players, at least in the near term…

Gold imports to India, the world's top importer, are likely to fall significantly in 2012 as the government's decision to double import duty to four percent is seen squeezing local demand, especially for jewellery, industry officials said.

Gold imports as the cause of India’s trade deficit are in reality just an excuse for its true driver: insatiable government spending.

And the belief that people’s demand for gold will be curtailed, as governments around the world ramp up the printing press, is an illusion

The likely response as captured by the same Mineweb article,

Bombay Bullion Association President Prithviraj Kothari said the increase would prompt a rise in smuggled gold and impact the jewellery sector more than the investment sector.

Yes a gold black market in India will mushroom

Also politicization of markets translates to more corruption.

Nevertheless whatever price weakness gold has recently been faced with should be temporary.