Any government move to further raise taxes on gold imports, in a bid to tame the government's runaway current account deficit, may not weigh down gold prices, unless demand dampens significantly. Analysts said the higher prices could be passed on to consumers.
Signs of the gold rally losing steam were visible last year, with the metal returning 13.04 per cent, against the Sensex's 25 per cent rise. As a result, unit holders in gold-backed mutual funds started reducing exposure to the commodity.
According to data from the Association of Mutual Funds in India, net inflows in gold exchange-traded funds (ETFs) halved to Rs 1,826 crore in 2012 from Rs 4,046 crore in the previous year - inflows in gold funds had declined for the first time in the last five years.