Gold Prices Slump Rs 5,000/10gm Post Budget, Brings Cheers to Retail Investors
Gold prices have sharply corrected by 7 percent, or Rs 5,000 per 10 grams, in the local markets following the government's reduction of the basic customs duty on gold. Experts predict that the lower costs will encourage more people to invest in gold, both as a commodity and as a financial asset. Analysts note that the customs duty cut has made gold imports cheaper, helping to curb the rampant issue of gold smuggling and promoting growth in the organized jewelry sector.
"The cut in basic customs duty on gold prices makes the yellow metal cheaper. While this can lead to weaker market sentiments due to the sudden change, retail investors stand to benefit from the new, more attractive pricing for gold", Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities.
Echoing similar sentiments, Krishnan R, Director & CEO of Unimoni Financial Services, said lower costs will encourage more people to invest in gold, both as a commodity and as a financial asset, which is often seen as a hedge against inflation and currency devaluation.
Following the Budget announcement by Finance Minister Nirmala Sitharaman, the government slashed basic customs duties on gold and silver from 15 percent to 6 percent. Gold prices crashed by Rs 3,350 to Rs 72,300 per 10 grams in the national capital on Tuesday. The precious metal prices continued the downtrend and plunged by Rs 650 on Wednesday. The yellow metal rates saw another steep fall on Thursday, nosediving by Rs 1,000 to settle at Rs 70,650 per 10 grams, as per the All India Sarafa Association.
After the duty cut, the yellow metal has declined Rs 5,000 per 10 grams, or 7.1 percent, in the past three sessions, since July 23 when it had fallen Rs 3,350 to end at Rs 72,300 per 10 grams. Gold of 99.5 percent purity also declined by Rs 1,000 to Rs 70,300 per 10 grams on Thursday, having lost ground by Rs 5,000 per 10 grams in the three previous sessions.
On Thursday, silver rates also dropped by Rs 3,500 per kg to Rs 84,000 per kg. In the past three sessions, silver prices fell sharply by Rs 7,000, or 8.3 percent, from Rs 91,000 per kg.
Traders noted that the sharp correction in gold prices has revived demand for jewelry among consumers, who flocked to jewelry outlets to take advantage of the lower prices. "The reduction in basic customs duties has spurted the demand for jewelry in the domestic markets. Further, this will act as a sales booster for jewelers before the festive seasons, encouraging fresh buying by the consumers due to lower prices," PC Jeweller Managing Director Balram Garg told PTI.
Low gold prices will help domestic jewelers, particularly those in the organized sector, Garg said. According to MP Ahammed, Chairman of Malabar Group, the reduction has been a long-standing demand of traders in the gold sector, as it is expected to curb the rampant issue of gold smuggling, which poses a substantial threat to the Indian economy. "With the new rates, the duty on one kilogram of gold drops from Rs 9.82 lakh to Rs 3.93 lakh, making smuggling less attractive and more manageable. This move will help dismantle the mafia chain involved in smuggling, leading to growth in the organized jewelry sector and increasing government revenue through GST and income tax", Ahammed said.
Meanwhile, in futures trade on the Multi Commodity Exchange (MCX), gold futures have partially recovered after three days of slump on Friday. The most traded August contract jumped Rs 288 to Rs 67,750 per 10 grams on the MCX, having settled at Rs 67,462 per 10 grams in the previous session on Thursday. However, silver contracts for September delivery continued their downward trend, declining Rs 241 to Rs 81,090 per kg, after closing at Rs 81,331 per kg in the previous session on Thursday.
Market experts suggest that stability in bullion prices will return once there is clarity on several economic and political factors, such as potential interest rate cuts by the US Federal Reserve. "Stability in gold prices is expected once there is clarity on several economic and political factors, including potential interest rate cuts in the US and India, and the outcome of the US Presidential elections will provide a clear direction for gold prices," Jateen Trivedi added.
