Gold prices are likely to rise by up to Rs 700 per 10 gram in the short term with tapered demand following the government decision to hike import duty on the precious metal, according to jewellers and analysts.
While the investment demand may fall in the immediate future, gold consumption in the jewellery demand would remain largely unaffected.
Jewellers, however, expressed concern that duty hike may lead to rise in import through unofficial channel including smuggling.
Soon after the government announcement, gold prices shot up in the national capital by Rs 315 to Rs 31,250 per 10 gram.
Some jewellers responded to the decision by raising jewellery prices.
"The government's decision to hike import duty on gold to 6 per cent will give rise to gold import through other means, especially smuggling. The hike in duty will also make the retail jewellery expensive by two per cent," Gitanjali Group Chairman and Managing Director Mehul Choksi said.
Commenting on the hike, PC Jeweller MD Balram Garg said "gold prices would rise by about Rs 700/10 gram in the short term". He, however, said there would be no adverse impact on jewellery demand.
"Investment demand which is in form of coin and bar would be affected as now there will be difference of 7 per cent (6 per cent import duty and one per cent Vat) in prices between domestic and global markets," Garg said.
All India Gems and Jewellery Trade Federation Chairman Bachhraj Bamalwa said that the retail prices of gold jewellery has already gone up by 2 per cent or Rs 600 per 10 grams.
"This decision will boost smuggling and parallel economy and the government is not going to gain anything from this as the money will be paid in hawala. In fact the government will lose on its revenue," he cautioned.
Mumbai Jewellers Association Vice President Kumar Jain said the 2 per cent hike in import will have negative impact in the gold industry.
"It will make gold more costly for the common man. There is an immediate rise in retail price by Rs 600 per 10 grams," Jain said.
Analysts tracking the sector said the gold prices will rise