NEW YORK (TheStreet) -- India's decision to raise import taxes on gold and platinum for the third time this year is an attempt to improve on the country's widening trade deficit by reducing imports and raising capital inflows. Whether these latest measures from the Reserve Bank of India (RBI) will actually limit metals demand before India's festival and wedding seasons is an entirely different question.

With little evidence to support the argument that internal demand in India is slowing, it is much more likely that policy changes to reduce imports will only encourage black market smuggling of precious metals. If this does occur, expect to see an Indian gold market in disarray, with jewelry prices showing marked increases in coming months.

This year's gold slump has spurred a round of bargain hunting, with year-over-year foreign gold purchases higher by 87% to 383 metric tons during the second quarter.

This consistent demand for gold bars, coins, and jewelry opens the gateway for black market activities that could undermine the government's policy intentions and weaken sales prospects for established retailers. Gold premiums in regional markets have risen to record levels since the RBI started forcing the suspension of imports and requiring 20% of each shipment to be stored for overseas re-sale as jewelry.

But the latest decision to lift gold, silver, and platinum tariffs to 10% will further limit official supply, complicate the ability to track true inventories and contribute to renewed volatility in metals prices.

India's current-account deficit is largely the result of crude oil and precious metals imports, and represents one of the biggest risks for the country's long-term growth prospects. Gold and platinum tariffs were 4% at the beginning of the year, and the latest increases were designed to bring gold import levels close to 850 tons for 2013.

At the same time, capital inflows will be helped from bonds issued by state-run companies that will be used to fund investments in infrastructure. This is the framework that helps define the RBI's strategy in dealing with current account problems that have pushed the rupee to all-time lows.

But while policies to reduce imports are relatively easy to implement, there is little guarantee these actions will achieve their intended consequences. The real question for how investment instruments like the

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will be affected ultimately rests on demand for precious metals in the world's largest markets.

The festival season in India runs from August to October; this is followed by wedding seasons that run from November to December and March to May. Gold sales surge during these periods as jewelry is given as gifts and used in ceremonies.

As we head in to these seasons, import limitations should lead to market shortages for precious metals.

Given the latest official measures, imports by retailers and banks could drop to 150 tons for the second half of 2013 -- well below the 475 tons that were shipped during the same period last year. The potential spread here is massive, and it quickly becomes clear that black market channels are going to make up some of that difference.

To what extent remains to be seen.

But gold consumption in India accounted for roughly 20% of global demand last year, and there is little reason to believe that these trends are likely to end any time soon. For these reasons, gold investors should be prepared for more erratic price volatility into the latter parts of this year.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Cox is based in China, and has lectured at several universities there on international trade and finance, focusing primarily on macroeconomics and price behavior in equity markets. His articles appear on a variety of Web sites, including MarketBulls.net, Seeking Alpha, FX Street and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally based on time horizons of one to six months.