The import duty for the precious yellow metal had increased by eight hundred which had hiked the price of the gold in Nepalese market. The market had observed the scarcity due to the actual market demand as well as the illegal outflow of gold to India. According to President of Nepal Gold and Silver Dealers’ Association, Tej Ratna Shakya, there is shortage of gold as supply in the market is about 10 kg per day while the actual market demand is around 40 kg per day.

Last import duty hiked by India in Gold was from two percent to four percent, due to which there was the difference in the gold price between the two neighboring nations. The difference in import duty had made Gold cheaper in Nepal compared to India. Thus, to take benefit from the price difference, gold had being illegally moved to India, draining the supply in the local market and creating more scarcity.

Nepal Gold and Silver Dealers’ Association had requested the government to hike the import duty to curb smuggling so that the Nepalese market can overcome the scarcity for the precious metal. In fiscal year 2009-10 due to the import of large quantities of gold and silver, Nepal suffered through a huge deficit of balance of payments. The government suspected that the imported precious metals were being illegally moved to India. To control such problem government determined the import quota for gold and also allowed only the commercial banks to import gold. Currently in Nepal only commercial banks can import 20 kg of gold daily and sell it to traders.

Following the Indian government’s move to increase customs duty for precious metals in early February, the Nepalese government also revised the customs duty on gold and silver fearing that gold would again be illegally moved to India due to the difference in customs duty.

Gold, though had a great use due to its monetary functions as they remained as security for the money printed in the country earlier, the use of dollar reserves have replaced because of higher stability with dollar, still gold is the charm and remains the most profitable item for the country.