The government should incentivise consumers to pay for their gold purchases through non-cash mode and refund the GST collected on gold when it is offered for recycling to discourage the booming grey market.

Though gold smuggling has come down due to suspension of international flights, the prevailing duty of 14.19 per cent including Agriculture Infrastructure Development Cess and GST on gold provide a big incentive for grey market operators.

Somasundaram PR, Managing Director (India), World Gold Council, told BusinessLine that over 90 per cent of the gold purchases are in cash, even through the official route with proper bills. When the cash transaction of the entire industry is so high, it is easier to sneak in the grey products, he said, delivering the keynote address at the Commodities Market Outlook 2022 event organised by BusinessLine. The webinar was powered by Indian Oil in association with Shree Renuka Sugars with BSE as associate sponsor and NCDEX as the knowledge partner.

The buoyancy in the grey market can be curtailed by cleaning up the recycling market. The Centre should give more incentives to recycling, besides refunding the GST paid on gold jewellery offered for recycling with a proper bill, he added.

Though the government is not willing to cut the import duty on gold, Somasundaram said it should get the recycling industry organised and provide sops to the buyers opting for non-cash mode.

Bullion hallmarking

While development of bullion exchange will bring in a lot of change in gold being resold, a separate market for used gold can also be considered. Bullion Exchanges will bring in the much-needed transparency in pricing, avoid counter-party risk and sellers will get their money at the end of settlement cycle.

Though there has been a teething trouble, Hallmarking Unique Identification (HUID) will soon be widely accepted and no other country had done it. There is a section of the industry which is still not convinced with HUID but finally technology will win and it cannot be stopped, he added.

The conversation around HUID has been diverted from ensuring purity of the jewellery to tracking the financial purchases which can anyway be done through various other means, he said.

The December quarter will be an exceptional quarter for gold demand as prices fell below ₹50,000 per 10 grams. Given the economic uncertainty, investors should increase gold in their portfolio from 10 per cent to 15 per cent and the central banks across the world have been a consistent buyer of the yellow metal last year, he added.

Akhil Nallamuthu, Senior Research Analyst, Business Line , said gold has gained enough movement since 2019 and not subsided despite talks of US interest hike and tapering of quantitative easing.

Speculators have started adding long position in last three months and their net long position in November was the highest in the past one year. There may be 2-3 per cent drop in prices due to knee-jerk reaction when US Fed hikes the rates but gold prices will remain firm through next year.

“I see $1,680 an ounce as a strong base for investors to purchase gold. It is unlikely to fall below $1,550 and prices will average out for long-term investors. Silver will not fall much from the current level. It is good to buy around $21,” he added.

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