Gold futures pare gains to trade little changed on India tax hike

Investing.com - Gold futures were largely unchanged in lackluster trade on Monday, trimming earlier gains as India’s proposed plan to double the import duty on gold led to muted action on the physical market.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,656.25 a troy ounce during early European morning trade, easing up 0.03%.      

It earlier rose by as much as 0.35% to trade at a session high of USD1,664.95 a troy ounce.

Gold futures were likely to find support at USD1,634.75 a troy ounce, the low from March 14 and short-term resistance at USD1,682.75, the high from March 14.

India’s customs duty on gold rose 4%, Finance Minister Pranab Mukherjee announced Friday, in a move aimed at helping the government to keep its current-account deficit under control.

Indian consumers had yet to return to physical market on Monday, having bought some gold in panic buying triggered by the announcement on Friday.

India is the world's top gold consumer. The duty hike may lead to a drop in demand for the precious metal.  

Prithviraj Kothari, president of the Bombay Bullion Association said India's annual gold demand could fall by more than 30% to 600 tons after the tax increase and local prices could rise by around 500 rupees per 10 grams.

But prices continued to draw support from bouts of bargain hunting and technical buying after futures dropped 3.15% last week, the second biggest weekly decline of 2012.

Gold prices have been under pressure in recent weeks as investors unwound long positions after the Federal Reserve gave an upbeat assessment of the U.S. economy, which reduced expectations for a third round of U.S. monetary easing by the central bank.

Gold has fallen around 8% since late February and are about 14% below the all-time high of USD1,920 per ounce hit in September.

Reports of central bank buying provided further support after the Financial Times said Friday that the recent drop in prices has prompted one or more central banks to buy as much as four tonnes of bullion in recent weeks.

The purchases, worth about USD250 million at current prices, were made through the Bank for International Settlements.

According to the World Gold Council, central banks were avid buyers of gold in 2011, with 439.7 tonnes' worth of purchases, the highest level since the end of the gold standard in 1971, compared with a modest 77 tonnes in 2010.

Elsewhere on the Comex, silver for May delivery shed 0.5% to trade at USD32.44 a troy ounce, while copper for May delivery dipped 0.25% to trade at USD3.868 a pound.

Barclays said in a report Friday, that silver's break below USD33.25 earlier in the week could lead to prices dropping to USD30 per ounce in the near-term.