gold futures (GC)

Gold (GC) Futures Outlook: India Raises Gold Import Tax by 5%.

  • The world’s second-largest gold consumer is trying to reduce gold demand in the country.
  • Global gold prices fell after the announcement.
  • Bears are eyeing May 16 lows on the charts.

Gold (GC) futures outlook is bearish as the yellow metal reacts to India’s bid to dampen demand for imported gold. India raised its import tax on gold by 5% to 12.5% after gold imports in May surged to $6 billion from $678 million last year. This surge has increased the trade deficit to $24.29 billion from last year’s $6.53 billion.

India is the world’s second-largest consumer of gold, and the possibility of a drop in demand saw gold futures prices collapsing. This collapse might, however, not last long, as observed by some market participants.

“In the short-term, gold demand could fall, but in the long run, demand would remain strong, and imports would rebound,” said Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA).

Global gold prices fell by 0.5% after the announcement, while local gold went up by about 3%. This sudden rise in prices might dampen demand for jewelry in the country.

“The hike has raised the gap between local and overseas prices to more than 15%, which could boost the smuggling of gold in the country. Smuggling was falling after the duty reduction and because of COVID-19 curbs on the movement of people. But now it could rise again,” said a Mumbai-based dealer with a global trading firm.

The downside to this new hike on import tax is that it could lead to under-the-counter purchasing and an increase in appetite for smuggled gold, as noted by trade officials.

Gold (GC) futures technical outlook:

Gold (GC) futures  4-hour chart
Gold (GC) futures 4-hour chart

The 4-hour chart shows a bear market that is making new lows. The price has broken below the June 14 low at 1806.1 and is moving lower on an impulsive leg. It is trading well below the 30-SMA, and the RSI is in the oversold region, showing strong bearish momentum.

If bulls come into the market in its oversold state, we could see the price retesting 1806.1 before continuing lower to 1785.1, which acted as support on May 16. The bearish trend will continue as long as the price trades below the 30-SMA, and the RSI keeps trading below 50.