Futures market hopes for cut in gold import duty

Futures traders are factoring expectations of a cut in gold import duty in the forthcoming Union Budget. That’s being reflected in a shrinking of the discount that the near month futures contract has been trading at to the mid-month contract over the past few sessions. The market seems to believe that a cut could happen in Budget FY17, said Vamsi Kona, manager (research) at Inditrade Derivatives & Commodities.

Consequently, the near month (Feb) discount to the mid-month (April) shrank to Rs 96 intraday on Monday from an average of Rs 190 on a continuous basis over the past year. Gold February futures traded at Rs 25,690 per 10 gm. The government raised the duty on gold to 10% in FY14 to curb imports of the metal,which drove the current account deficit to 4.7% of GDP a year earlier. Since then, the situation has improved with Citi having forecast CAD to be 1% of GDP in FY16 because of low crude prices and contained gold imports.