Gold Duty Cut: What It Means for Festive Investments

Gold is more than just a valuable investment — it holds immense cultural and religious significance. The price of gold is influenced by various factors, including exchange rates, import duties, and demand. In the Union Budget of 2024, the Finance Minister announced a significant reduction in the import duty on gold, from 15% to 6%. With the festive and wedding season approaching, this move could trigger a surge in gold purchases by both buyers and investors.

Let’s dive into how gold demand is expected to unfold this season as the effects of the import duty cut take hold.

What’s Happening?

The government has slashed customs duty on gold and silver to 6%, lowering the domestic landed price by 6%. This has sparked strong buying interest from both consumers and retailers.

Experts predict that the reduction in import duty, alongside the subsequent fall in gold prices, will fuel gold sales. With the announcement made just ahead of festivals like Navratri and Diwali, as well as the wedding season, gold demand is expected to surge.

Impact of the Import Duty Reduction

Over the past few decades, the government has consistently increased customs duties to curb rising gold imports, which have contributed to widening the current account deficit. However, as the second-largest consumer of gold, India’s import duties did little to improve the current account situation but led to an increase in gold smuggling.

The reduction in import duty has been a major demand from stakeholders across the industry. Lowering the input cost will boost domestic manufacturing and improve export competitiveness. Despite rising international prices, the domestic landed price of gold has dropped by 6% since the import duty cut was announced.

Increase in Investments in Gold ETFs

Since the Budget 2024 announcement, fund inflows into gold ETFs have surged. According to data from the Association of Mutual Funds in India (AMFI), July saw net inflows of Rs 13.4 billion — an 84% increase from June and the highest inflows since February 2020. The total assets under management (AUM) for gold ETFs at the end of July 2024 stood at Rs 345 billion, marking a 48% increase compared to July 2023.

The annual growth rate of AUM in gold ETFs is 48%, outpacing the 40% growth rate of mutual funds. As gold demand rises, prices are expected to increase further, driving even more investments into gold ETFs.

What’s Next?

On Budget day, gold prices dropped by Rs 4,000 on the Multi Commodity Exchange (MCX). However, they have since rebounded sharply due to strong demand sentiments and geopolitical tensions, currently trading at approx Rs 74,000. The overall outlook for gold remains positive, driven by strong consumption demand and global factors. Long-term investors can view any price corrections as a buying opportunity to increase their gold holdings.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

This article is for informational purposes only. This is not investment advice. Disclaimer: Teji Mandi Disclaimer