The Union Budget 2024 had announced a significant reduction in the import duty on gold. Union Finance Minister Nirmala Sitharaman, on July 23, announced a cut in custom duty on gold and silver to 6 per cent.
“To enhance domestic value addition in gold and precious metal jewellery in the country, I propose to reduce customs duties on gold and silver to 6 per cent and that on platinum to 6.4 per cent,” the Finance Minister said in her budget speech.
“With reduction in custom duty, domestic consumers now have access to the yellow metal at comparatively much lower prices as the jewellers will pass down the cost benefits of low custom duty to their customers. Going forward, this move will make gold rates further attractive for domestic consumers, which will further provide a major boost to the domestic demand as well as exports, especially at the time of festive season,” said Colin Shah, MD, Kama Jewelry.
Price changes post-budget
Initial impact: On the day of the budget announcement (July 23), gold prices on the MCX fell sharply, dropping by over ~4,000 to around ~68,500 per 10 grams. This was a direct reaction to the customs duty cut, which aimed to boost domestic demand and curb smuggling.
Subsequent trends: The following day (July 24), prices saw a slight recovery, rising to ~ 68,865 per 10 grams, reflecting the market’s adjustment to the new duty structure. However, by July 25, prices fell again, with MCX gold trading at ~67,793 per 10 grams, marking a decline of 1.68 per cent from previous levels.
Current status: On August 14, gold was ~70964 per 10 grams on MCX, influenced by both local demand dynamics and international market trends.
It is important to note that customs duty is only a minor factor in deciding local gold prices.
Other variables, such as international gold prices, demand-supply dynamics, and the rupee-dollar exchange rate, have a greater impact on gold prices in India. International gold prices are driven by factors like the strength of the dollar, geopolitical tensions, inflation, and central bank purchases.
Experts suggest the reduction in customs duties has prompted a notable increase in consumer demand, which may, in turn, provide additional upward support to prices.
Given the favourable demand prospects, long-term investors can use price corrections as buying opportunities to increase their holdings in the metal and people planning to take gold for wedding season should take advantage of price adjustment.
First Published: Aug 15 2024 | 2:35 PM IST
