India slashes tax as gold prices sink

On Saturday, India slashed the import tariff value on gold by more than Rs6,000 (Dh370) per kg following a global meltdown in the price of gold over the past two trading days.

The Indian government on Saturday slashed import tariff value on gold to $391 per 10gm and silver to $551 per kg following weak global price trends. During the last fortnight, the tariff value on imported gold was fixed at $401 per 10gm and on silver at $575 per kg.

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Gold price tanked to its lowest level since 2010 as the scheduled end of the US Federal Reserve’s asset-purchase program kicked in on Halloween night, October 31.

The gold price seemingly fell off a cliff on Friday, the last trading day of October and the last day before the end of what is popularly known as the third tranche of the US’ quantitative easing programme (QE3), breaking a couple of key support levels and sinking to as low as $1,161.37 per ounce in intra-day trade.

Gold finally settled at $1,172.49/oz on Friday, a closing level that the yellow metal hasn’t seen since July 2010. Battered by US dollar strength, Comex December gold was down about $67/oz for the week.

Additionally sounding the death-knell for the yellow metal are analysts that reckon that prices are set to fall further.

On Monday, gold prices slipped further and the yellow metal was trading at $1,169.83/oz at 10.30am UAE time (06.30 GMT).

Out of 22 respondents to a Kitco News weekly Gold Survey last week, seven saw higher prices while 14 saw lower prices and one saw prices trading sideways. Market participants included bullion dealers, investment banks, futures traders and technical-chart analysts.

"Precious metals were hurt badly this week after the US FOMC [Federal Open Market Committee] ceased its asset purchase programme and attention turned to when interest rates will rise," wrote Ole Hansen, Head of Commodity Strategy at Saxo Bank, in his weekly precious metals update published on Sunday.

"The dollar rallied and the S&P 500 hit record territory once again. Gold's weakness was exacerbated by the negative impact of rising risk appetite following the surprise announcement from the Bank of Japan. That change also highlighted the continued reduction in inflationary pressures which is now being lowered by the dramatic weakness in energy prices in recent months," he said.

Bank of Japan confounded expectations on Friday by announcing another expansion of its quantitative easing programme. With this increase in money printing coming just days after the US FOMC pulled the plug on its QE3 programme, the move from the BoJ was triggered by the central bank's unease over the recent undershooting of inflation, largely due to falling energy prices.

Mirroring its more illustrious cousin’s decline, silver also took a hit. The white metal closed at $16.14/oz down more than 6.5 per cent over one month.

Even as analysts expect physical demand from India and China to return in a big way owing to the recent price crash, it may not be enough to buoy the prices up to mid-October highs of gold price above $1,250/oz before the end of the year.

Gold price made a 2014 high of $1,380 in March, but has since plummeted more than 15 per cent.

"The subsequent move to a new four-year low would indicate a resumption of the sell-off which otherwise has been on pause for the past 16 months. The trading behaviour over the next week or so has suddenly become incredibly important as a failure to regain $1,180/oz could indicate that the price needs to go lower," said Hansen.

"The support level to look out for now is first of all $1,159/oz, the July 2010 low, followed by $1,088/oz which if reached would complete a 50 per cent retracement of the 10-year rally from 2001 to 2011," he added.

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