Suhani Adilabadkar
Gold prices have gone up by 20% over the past six months. Gold is currently hovering around $ 2400 levels in July 2024. Amid geo-political tensions, economic uncertainty and high inflation, safe haven gold is preferred by investors worldwide. Gold prices increased nearly 30% in 2020 with Covid-19 pandemic impacting every sphere of life. While the pandemic fear has receded, uncertainty still remains.
Gold Prices Fall After Import Duty Cut Announcement
In India, gold prices are currently at Rs 68,101 per 10 gram (24-carat). The gold rate in India is dependent on three major factors, rupee dollar exchange rate, international gold prices and customs duty on gold imports. With rising international gold prices, import duty of 15% impacted gold demand in India, the second largest consumer in the world. Indian gold imports were 38.66% lower in June 2024. Thus the import duty cut on gold, silver and platinum in the budget 2024 was timely. Import duty on gold and silver has been reduced to 6% from 15%. Import duty on platinum, the new age millennial and Gen Z, precious metal has also been reduced to 6.4% from 15%. With the fall in import duty, the precious metals have become cheaper. Gold prices have fallen 7% over the past six days in India.
Titan, TBZ, Kalyan Jewellers Stock Prices Rise
Lower import duty has improved affordability of gold and renewed buyer interest in the current slack period as the wedding season is at its fag end. Jewelers are seeing renewed interest after the import duty cut announcement. And the stock prices of gems & jewellery companies, Titan Company, Tribhovandas Bhimzi Zaveri (TBZ), Kalyan Jewelers India, Thangamayil Jewellery and Senco Gold have all reacted positively after the reduction in import duty announcement. From the budget day, TBZ and Kalyan Jewellers India have gained nearly 7-8%. Thangamayil Jewellery jumped 6.5% and Senco Gold soared 8% on the budget day. Market leader Titan stock price jumped 6% on July 23, 2024 and has gained 7% since the budget day. Investors are expecting lower import duty to reduce raw material cost for the jewellery companies improving their margins and profitability and also higher customer footfalls to increase revenue in the coming quarters.
Middle Class Prefers Physical Gold, Gems & Jewellery Exports To Improve
In India, middle class families invest their savings in fixed deposits, insurance policies, post office schemes, public provident funds and in physical gold. For a middle-class Indian family, it is more convenient to invest and pass on savings in the form of gold to the next generation than buying a piece of land. Thus, gold is heavily bought on weddings, on auspicious occasions and festivals in India. While the affluent class is also investing in digital gold, gold exchange traded funds (ETF) and sovereign gold bonds, the middle class prefers physical gold. Investment in gold has become even more attractive with the reduction in long term capital gains tax on gold from 20% to 12.5%. And to qualify for long term capital gains tax, the holding period has also been reduced from 36 months to 24 months in budget 2024.
During high inflation, recession, geo-political uncertainty, pandemic fears and economic turmoil, gold shimmer has not dimmed over the years. Higher import duty also encourages gold smuggling and has impacted gems & jewellery exports from India. Thus, import duty cuts in gold, silver and platinum will boast gems & jewellery exports which have suffered since 2020. With uncertainty now being a constant variable in the present scenario pushing gold prices on an upward trajectory, the central government has taken the right step to reduce import duty. The US Federal Reserve is expected to lower interest rates by 25 basis points in its September 2024 meeting. With lower interest rates in the US, the shimmer of gold as an asset increases worldwide and international gold prices are expected to rise.
