Gold becomes less affordable as imports remain limited

In the wake of recent global market trends where gold prices climbed past the USD 5,500 per ounce mark, the Sri Lankan domestic gold market is currently sustained largely through auctions of pawned jewellery conducted by banks and financial institutions, as commercial gold imports have virtually halted due to prohibitive import duties, the Daily Mirror learns.

This change in the local supply chain comes amid significant fluctuations in the global market. Global gold prices, which had been on a record-breaking trajectory fuelled by intensifying U.S.-Iran tensions and ongoing global conflicts, experienced a sharp correction yesterday compared to earlier this week.

After climbing past the staggering USD 5,500 per ounce mark on January 29 and nearing USD 5,600, global spot prices took a sudden downturn. Market data indicate that prices dropped to USD 5,100 per ounce on January 30. Despite this dip, the overall trend remains historically high, driven by investors seeking safe-haven assets in a geopolitically unstable world.

In par with the global market movements, the local price of a 24-karat gold sovereign (8 grams) is currently priced at Rs. 400,000, while a 22-karat sovereign hovers between Rs. 368,000 and Rs. 370,000.

Speaking to Daily Mirror, Head of the Jewellery Segment of the Sri Lanka Gem and Jewellery Association (SLGJA), Sellakumar Kandasamy, said that prices have been rising steadily throughout January. This follows a sharp surge that began last December due to the rise of gold prices globally and instability in the US economy. However, he said that domestic prices decreased yesterday due to the volatility in the international market.

The volatility has been stark. By January 29, a 24-karat gold sovereign had reached a peak of Rs. 420,000, rising from Rs. 397,000 recorded on January 26 and Rs. 368,425 at the start of the month. Similarly, a 22-karat gold sovereign had climbed to Rs. 397,000, compared to Rs. 367,000 just three days earlier and Rs. 340,400 at the beginning of the year.

"The domestic gold market is currently sustained largely through auctions of pawned jewellery conducted by banks and financial institutions, as commercial gold imports have virtually halted. Steep import duties have rendered imports unviable," Kandasamy said.

He further warned that this dynamic could dampen retail demand, as gold becomes increasingly unaffordable for consumers.

Amidst this turmoil, last year, Sri Lanka’s gem and jewellery industry has renewed its call to the government to reduce the import duty on gold from 15% to 5%. The industry argues this is necessary to offset soaring world market prices that have fuelled local prices to unprecedented levels, disrupted supply, and left small jewellers struggling to survive.

The current duty, implemented in April 2018 to slow down a rapid spike in gold imports and discourage smuggling to countries like India, has reportedly hurt legitimate businesses while doing little to curb illegal movement, according to industry representatives.

(Source - DailyMirror)