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Could India Witness a Cut in Gold Duty in 2016?

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Curbing the duty

India’s central government had raised the import duty on the gold imported into the country to cut down on the current account deficits. The CAD (current account deficit) rises when a country’s total import bills are greater than the export bills. Higher deficit figures lead to the depreciation of the local home currency, that is, the Indian rupee (or INR), and strike up inflation as imports rise. In 2012, the import duty was doubled from 2% to 4%, then to 10% after that in fiscal 2012–2013. The country’s current account deficit had ballooned to 48% of the GDP (gross domestic product). After the introduction of import duty on gold and other precautionary measures by the government, the CAD now stands at 1.3% of GDP in fiscal 2014–2015.

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Gold can benefit

The further reduction of the import duty on gold once again may raise demand in Indian markets. The higher the requirements from India, the greater the chances that the prices can be buoyed in the coming year. The Asian market makes up almost 60% of the total demand for gold. The curb in duties can cause gold enthusiasts to be on their toes to buy more.

However, the looming fear of interest rate hikes in 2016 continues to bully precious metals. Higher demands can certainly give precious metals some breathing room. The apparent rise in gold prices can also buoy ETF investments like the Sprott Gold Miners ETF (SGDM) and the SPDR Gold Trust (GLD). These two ETFs have retreated 267% and 10%, respectively, in 2015. The mining-based companies that performed comparatively well in 2015 include Agnico Eagle Mines (AEM), Alacer Gold (ASR), and Centerra Gold (CG). These three stocks gained 12.6%, 12.2%, and 20.9%, respectively, in 2015. Together, the three companies make up 7.2% of the VanEck Vectors gold miners ETF (GDX).

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