Major news in the gold market over the weekend. With the world’s largest gold-consuming nation reaching an agreement to resume metal sales for the first time in nearly three weeks.
That’s in India. A critical gold consumer globally, where buying had been idled since the beginning of March by a nation-wide strike by the jewelry sector.
But that strike is now officially over. With the president of India Bullion and Jewelers Association, Mohit Kamboj, announcing late Saturday that jewellers have reached an agreement with the government to return to work.
Details are still emerging, but here’s one of the most critical takeaways: as part of the back-to-work deal, the Indian government will not roll back the 1% sales tax on gold that it announced in a surprise move as part of its February 29 budget.
That sales tax had been the major trigger for the jewellers strike. But it appears that India’s gold sellers have relented on demands that the government shelve the extra levy.
Instead, reports suggest that jewellers had been appeased by assurances from the government that they would not be “harassed” over the collection of the new tax.
It’s difficult to know exactly what this means. Although it could suggest that tax officials may not push collection of the sales tax — rendering this more of a cosmetic measure than a practical one.
Whatever the case, the good news for the gold market is that India will now be buying again — for the first time since February. Which should give a lift to gold prices — especially with reports suggesting there is a lot of “pent up” demand here after the 19-day strike.
Watch for imports into India to rise for the coming weeks, and potentially lift the gold price. And keep an eye out for more details on how the 1% sales tax will be implemented — with this measure having the potential to dampen gold sales here in the longer term.