Finance Minister Nirmala Sitharaman has announced a 2.5 percent increase in customs duty on gold imports

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, raising it from the existing 10 percent to 12.5 percent. Add another 3 percent GST, the total levy on gold would be 15.5 percent, making India the highest import duty on gold anywhere in the world.

The higher duty pushed domestic gold prices up, prompting dealers to offer the highest discount in nearly three years.

While analysts expect a firmer trend in gold prices, they continue to remain bullish on the precious metal.

"The hike in import duties was unexpected, as the market was expecting a reduction in import duties. We see physical demand for gold coming down due to high prices. However prices of gold will continue to remain firm,” said Pritam Kumar Patnaik, Head Commodities, Reliance Commodities.

Golds prices recently touched new highs with Gold MCX August 2019 futures contract scaling beyond Rs 35,000 per 10 gram.

Domestic gold prices have risen by 15 percent since December 2018 due to a weak rupee and higher international prices.

Kishore Narne of Motilal Oswal Securities also has a positive outlook on the commodity. Not just that, Narne expects gold to break Rs 40,000 per grams in 2020.

"We continue to hold our bullish view on gold on the back of trade war, falling interest rates and rising geopolitical concerns. We expect the domestic prices of gold to close above Rs 36,000 per 10 grams by this year end and break Rs 40,000 per 10 grams in 2020," he added.

“Today’s announced import duty hike on gold will negatively impact India’s gold industry. It will impede efforts to make gold as an asset class particularly when gold prices are already rising globally. In addition, the grey market will thrive which will dilute efforts to reduce cash transactions," said Somasundaram PR, Managing Director, India, World Gold Council.

First Published:Jul 5, 2019 8:29 PM IST