Experts indicate that the recent cut in custom duty on gold might influence gold prices only in the short term.
Union Budget 2024 and Custom Duty Reduction
The Union Budget 2024 introduced a significant reduction in import duties on gold. On July 23, Union Finance Minister Nirmala Sitharaman announced the reduction of custom duties on gold and silver to 6%.
Price Movements Post-Budget
- Initial Impact: On the budget announcement day (July 23), gold prices on the MCX dropped sharply by over ₹4,000 to around ₹68,500 per 10 grams. This decline was a direct reaction to the custom duty cut aimed at boosting domestic demand and curbing 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 1.68% decline from previous levels.
- Current Status: As of August 14, gold was trading at ₹70,964 per 10 grams on MCX, influenced by local demand dynamics and international market trends.
It’s crucial to note that customs duty is only a minor factor in determining local gold prices.
Other variables, such as international gold prices, demand-supply dynamics, and the rupee-dollar exchange rate, have a more significant impact on gold prices in India. International gold prices are influenced by factors like the strength of the dollar, geopolitical tensions, inflation, and central bank purchases.
Experts believe the reduction in customs duties has led to a noticeable increase in consumer demand, which might provide additional support to prices.
Given the favorable demand outlook, long-term investors could view price corrections as buying opportunities to increase their holdings. Those planning to purchase gold for the wedding season should take advantage of these price adjustments.
