Gold prices dropped after Finance Minister Nirmala Sitharaman announced a significant cut in the customs duty on the metal in Union Budget 2024–25.
The price of the purest form of gold fell nearly 5% on Tuesday, according to the India Bullion and Jewellers Association. The prices saw a marginal rise on Wednesday as buyers attempted to take advantage after the customs duty on the yellow metal was cut to 6% from 15% earlier with immediate effect.
"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% and that on platinum to 6.4%," Sitharaman said during her budget speech on Tuesday.
Anticipation Of Further Downside
"The significant drop in gold price on Tuesday was caused by the cut in import duty from 15% to 6%, which exceeded the market's expectations," Kaynat Chainwala, assistant vice president of commodity research at Kotak Securities, said.
A further downside could take place in the near term in the absence of any other major fundamental triggers, she said. "There may be some more weakness in the near term as the markets are currently adopting a wait-and-watch approach, anticipating key US data releases and the FOMC (Federal Open Market Committee) statement."
Long-Term Outlook Remains Positive
The prices in the spot market did not fall as much as the prices in the futures market. This is because jewellers would have had an inventory of gold they had bought before the cut in customs duty, which will make imports of gold cheaper, explained Kishore Narne, associate director of commodity and currency business at Motilal Oswal Financial Services.
Prices of gold in India largely mirror global prices because India imports most of the gold it consumes. There is likely to be a spurt in demand in the short term, which should provide support to the prices, according to Narne.
Motilal Oswal is bullish on gold prices for the remainder of the year, with a price target of $2,600 per troy ounce. As of today, the international price of gold stood at $2,415 per troy ounce.
Prices of gold have risen in tandem with a fall in US bond yields and a decline in the value of the US dollar. These two triggers are likely to be responsible for a further upside in gold prices in the remainder of the year, Narne said.
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