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With yet another hike in import duty, the cost of the precious metal shot up in the city on Tuesday. Jewellers say this move will also encourage illegal ways of bringing it into the country

Soon, a bagful of cash may not get you as much gold as before.

In the next few days, the price of the yellow metal is expected to skyrocket, thanks to Centre’s announcement of a hike in the import duty for gold from 4 per cent to 6 per cent.

In Chennai, the impact of this announcement was felt in a single day — on Tuesday evening, the cost of 22-carat gold soared to Rs. 2,916 per gram, adding Rs. 53 more per gram compared to Monday’s price. One sovereign of gold comprising eight grams, was priced at Rs. 23,328.

Jewellers said the increase in import duty would not bring down demand for the precious metal, but would only lead to a further increase in its cost by about Rs. 600-Rs. 700 per sovereign of jewellery. Also, smugglers could now make up to Rs. 2.10 lakh for every one kg of gold brought into the country, they said.

Since gold prices have been volatile of late, jewellers said sales have not been very good even during the wedding season. However, the duty hike would attract more buyers as the yellow metal was a preferred investment venture that promised good returns, they said.

Representatives from various jewellers’ organisations in the city plan to meet Union finance minister P. Chidambaram next week, to urge him to withdraw the duty hike. Members of the All India Gems and Jewellery Trade Federation plan to meet in New Delhi on January 29, and discuss the issue.

N. Ananthapadmanabhan, regional chairman of the federation, said that the government has increased the import duty thrice over the period of a year. It may be recalled that the duty was hiked from two per cent to four per cent last March and from one per cent to two per cent in January 2012.

Jayantilal Chalani, president of Madras Jewellers and Diamond Merchants Association said that the increase in import duty alone, had contributed to the increase of gold prices by Rs. 120 per gram in the last year. The government could instead take measures to encourage exporters of the precious metal for better foreign exchange, he said.

Despite the reduction in imports, the demand for the precious metal has shot up by 10 to 15 per cent over the past three years.

This new move would only encourage smuggling of gold from abroad, as the gap between international prices and domestic costs is bound to increase by seven per cent, which includes one per cent of VAT, he added.

Tamil Nadu contributes to about 35 per cent of the annual gold consumption of nearly 900 tonnes in the country.