Attempting to curb imports
Under the guidance of the prime minister Narendra Modi, the Indian government is trying hard to control gold imports into the country. Large imports make a fat bill for India and affect trade balance. Authorities are demanding the tax code or PAN (permanent account number) card details of big gold buyers. If the investment exceeds 200,000 Indian rupees (~$2,900), the government is interested in keeping an eye on it.
However, rather than denting demand and promoting more transparency, the new rule is falling flat for officials. Investors and sellers are both opting for ways not to share PAN details by way of generating bills in multiple names or choosing to pay in installments, splitting costs over numerous bills.
In India, only a marginal 3% of people pay income tax. Many opt to park money in gold, which can be quickly liquidated. The current rise in such unauthorized trades has raised concerns from government officials. Attempts to provide more transparency have instead adversely affected policymakers.
Precious metal recovery
The recent rise in gold’s price in 2016 may have resulted in higher buyer interest, further increasing illegal sales. Gold has risen 9.1% since the start of the new year, slightly lagging behind a complete recovery from 2015’s 10% fall. Silver has also risen about 7.7% since the start of 2016.
The rises in gold and silver prices are reflected by the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust ETF (SLV). Gold’s rise in price has prompted rises in mining-based investments such as Pan American Silver (PAAS), Yamana Gold (AUY), and Randgold Resources (GOLD). These three stocks rose 15.1%, 14%, and 22.7%, respectively, on a 30-day-trailing basis.