Gold prices at record high, won't dampen demand in festival/wedding season

Tribune News Service

Chandigarh, August 27

For Indians, gold is not just an investment but also an asset that comes with sentimental and emotional attachment, passed from one generation to the next. Indians buy gold for marriages, ceremonies, festivals like Akshaya Tritiya, Dhanteras and Diwali — in fact, for almost every other religious event, and as an investment.

Since 2022-23, the price of gold has scaled new heights, dampening the enthusiasm of many retail customers. On Tuesday, it registered a “slight increase”, with 24-carat gold trading at Rs 74,203 per 10 grams in Delhi, according to reports.

Globally, too, it continued to trade close to record highs on the back of the US rate cut optimism and geopolitical risks.

Despite the rise in prices, experts expect the demand to grow and strengthen in India during the coming festival and marriage season. The reason? The reduction in the import duty announced by the Union Government in the Budget last month.

The demand

The demand for the precious metal in the upcoming festive season is expected to be strong as the reduction in the import duty has made prices “attractive” for retail consumers.

Though gold is trading at record prices, the prices would have been much higher without the duty cut, perhaps at the level of Rs 80,000 per 10 grams, taking the sheen off the trade, say experts.

The demand in India usually strengthens towards the end of the year, when it’s the festival and wedding season in the country.

Import duty cut

In order to curb smuggling, India cut down the import duty on gold from 15% to 6% in July. In the Union Budget, Finance Minister Nirmala Sitharaman proposed to cut the customs duty on gold and silver to 6% and on platinum to 6.4%. “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,” she said.

The duty reduction made gold imports via unofficial channels less (or even non) profitable, according to the World Gold Council.

The duty reduction from 15% to 6% is the sharpest on record, taking the figure to its lowest since June 2013. Prior to the July Budget announcement, the import duty on gold had been above 10% for almost 11 years, as per the WGC.

Why gold

In India, gold has always been considered a safe and profitable investment and a way to tide over hard times. The prices may have increased substantially over the past couple of years, but given that gold reserves are finite, experts say that small investors should continue to increase exposure and allocate a percentage of their savings to it.

Across the world, the precious metal is seen as a hedge against economic factors like inflation and currency volatility, a reason why countries have been adding gold to their portfolio.

Economic uncertainty, inflation and the recessionary impact of Covid-19 on the global economy pushed gold prices higher but the race to accumulate more was also driven by other factors, especially geopolitical, in the past couple of years.

India too has been buying gold as a tool of portfolio diversification and as a cushion against value changes in the rupee vis-a-vis the US dollar.

As an international commodity, gold is priced in the US dollar and any depreciation in the rupee results in a rise in its price.