Gold and silver exchange traded funds rally after government hikes import duty

MUMBAI: Gold and silver ETFs, and jewellery stocks were in focus on Wednesday after govt hiked import duty on these precious metals to 15% from 6%. ETFs jumped over 10% in early trades and then stabilised with about 6-7% gain, lower than the hike in duty rate. Jewellery stocks, meanwhile, showed a mixed trend.

In the commodity derivatives market, gold and silver contracts witnessed good buying interest, and prices showed strong uptick. On BSE, Nippon India’s Gold Bees, the largest yellow metal ETF and also the most traded on the bourse on Wednesday, closed 5.7% higher while the same fund house’s Silver Bees, the most traded in this category, closed nearly 7% up.

According to a note by Chirag Mehta, CIO, Quantum Mutual Fund, while the import duty has effectively increased by around 9 percentage points, domestic gold prices have risen only about 6%. “This gap signals market inefficiencies and structural frictions, including inventory effects, where existing lower-duty inventory gets repriced gradually, not instantly.

“Secondly, at elevated prices, buyers defer purchases, limiting full pass through. Additionally, jewellers, refiners, and distributors may temporarily absorb part of the increase. And lastly, international price movements and currency fluctuations can offset duty impact,” he said. “But at a deeper level, this (gap) reflects a longstanding issue: India’s gold market is structurally distorted by layered taxes, duties, and frictions, creating a persistent wedge between global and domestic pricing,” Mehta’s note explained.

On Wednesday, among jewellery stocks, Titan, after an initial slide, closed 1% up while Kalyan Jewellers closed 1.9% lower and Senco Gold closed 4.1% up.

A sharp rise in prices was seen on the commodities derivatives market. In late trades on MCX, the price of gold futures for June delivery was up Rs 8,935/10gm at Rs 1.6 lakh while silver futures for July delivery was up Rs 21,500/kg to Rs 3 lakh, exchange data showed. In the domestic spot market for gold, prices rose by about Rs 10,000 to about Rs 1.6 lakh, while silver was up about Rs 19,000 to about Rs 2.9 lakh.
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