August 13, 2013, 4:37 p.m. ET

Gold Falls 1%

India Taxes, Strong Dollar Pressure Metal


NEW YORK—Gold futures settled down 1% after India, the world's largest gold consumer, announced a fresh round of increases of its import tax on precious metals.

The most actively traded contract, for December delivery, fell $13.70, or 1%, to settle at $1,320.50 a troy ounce on the Comex division of the New York Mercantile Exchange.

India's Finance Ministry raised the import tax on gold and silver to 10% as authorities ramped up efforts to rein in the nation's widening current-account deficit. India is the world's largest gold consumer, accounting for about 30% of demand for gold jewels, coins and bars.

"There's no question that Indian gold curbs are definitely hurting demand ... that's kind of the knee-jerk reaction in the market today," said Graham Leighton, a precious metals broker with Marex Spectron.

This is India's fifth increase in gold import taxes in the past year and a half. The government's efforts come ahead of the Hindu wedding season, which peaks with the Diwali festival in November and typically sees consumers increase their gold purchases as traditional wedding gifts.

Gold prices also faced pressure from a stronger dollar, which gained ground against a mix of international currencies. The ICE Dollar Index was recently up 0.6% at 81.780.

As the dollar strengthens, dollar-denominated gold becomes more expensive for buyers who use other currencies, sapping their interest in the metal.

"The dollar started surging this morning, and that took a lot of wind out of the sails of precious metals," said Matt Zeman, a senior market strategist with Kingsview Financial.

Still, gold's losses were muted, and prices kept well above the psychologically important $1,300 an ounce as some investors kept their eye on the broader picture of global gold supply and demand.

While India's gold purchases have been under consistent pressure from government efforts to stem imports this year, "what's interesting is that the Chinese have taken up the slack quite considerably," Mr. Leighton said.

China's demand for gold hit a record 385.5 metric tons in the second quarter, according to data released Monday by the state-backed China Gold Association.

That figure had doubled from a year earlier, according to a Wall Street Journal analysis of the data.

http://online.wsj.com/article/SB10001424127887324769704579011093227556488.html?m od=googlenews_wsj