India continues to tighten its grip on the country’s gold trade, introducing a ban on credit card purchases of gold on an instalment basis.
Mineweb reports on a massive drop off in sales at Mumbai jewellers where typically for gold sales over Rs100,000 (roughly $1,650), shoppers opt to convert gold purchases on credit cards into equal monthly instalments over three or six months.
The new regulations by the Reserve Bank of India follows a hike in the import tariff value of gold last month which is used to calculate customs duty. The system is designed to prevent under-invoicing.
Gold is India’s number two import item in terms of value after crude oil and the government has been trying to curb imports to reduce the country’s chronic balance of payments problem.
India hiked the import tax from 2% to 8% over the past year, banned traders from importing gold on margin and may stop state-run entities from importing gold at all.
The country is also weaning away small investors from buying gold as a hedge against high inflation by introducing government bonds that will adjust returns based on the rate of inflation.
According to some estimates, Indian households are hoarding close to 20,000 tonnes of gold worth some $1 trillion, representing 50% of the country’s GDP.
In New York on Friday the gold price ended the week close to three-year lows at $1,222.