MUMBAI: Gold and silver ETFs, along with jewellery stocks, were in the spotlight on Wednesday after the government increased the import duty on these precious metals to 15% from the earlier 6%. ETFs surged over 10% in early trades before stabilizing with gains of about 6-7%, which was lower than the hike in the duty rate. Jewellery stocks, on the other hand, displayed a mixed trend.
Commodity Derivatives Market Sees Strong Buying
In the commodity derivatives market, gold and silver contracts witnessed robust buying interest, leading to a sharp uptick in prices. On the BSE, Nippon India's Gold Bees, the largest gold ETF and the most traded on the bourse on Wednesday, closed 5.7% higher. Similarly, the same fund house's Silver Bees, the most traded in its category, closed nearly 7% up.
Market Inefficiencies and Structural Frictions
According to a note by Chirag Mehta, CIO of Quantum Mutual Fund, while the import duty has effectively increased by around 9 percentage points, domestic gold prices have risen only about 6%. He explained that this gap signals market inefficiencies and structural frictions, including inventory effects where existing lower-duty inventory gets repriced gradually, not instantly. Additionally, at elevated prices, buyers defer purchases, limiting the full pass-through. Jewellers, refiners, and distributors may temporarily absorb part of the increase. International price movements and currency fluctuations can also offset the duty impact. Mehta further noted that 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.
Mixed Performance of Jewellery Stocks
On Wednesday, among jewellery stocks, Titan initially slid but closed 1% up. Kalyan Jewellers closed 1.9% lower, while Senco Gold closed 4.1% higher, indicating a mixed trend in the sector.
Sharp Rise in Commodity Derivatives
A sharp rise in prices was observed on the commodities derivatives market. In late trades on the MCX, the price of gold futures for June delivery was up Rs 8,935 per 10 grams at Rs 1.6 lakh, while silver futures for July delivery was up Rs 21,500 per kilogram to Rs 3 lakh, as per exchange data. In the domestic spot market for gold, prices rose by about Rs 10,000 to approximately Rs 1.6 lakh, while silver was up about Rs 19,000 to around Rs 2.9 lakh.
