The Indian Express (Delhi Edition)
Is this the right time to invest in gold and gold- linked instruments?
DOMESTIC GOLD prices have fallen by nearly 5 per cent since July 23, when Finance Minister Nirmala Sitharaman lowered the customs duty on the yellow metal. While this duty cut led to a fall in gold prices, it also resulted in a surge in the demand for the precious metal. With drop in prices, is the time right to invest in gold and gold- related instruments?
Changes announced
In the Union Budget 2024- 25, FM Sitharaman announced a cut in the customs duty on gold to 6 per cent from 15 per cent earlier. For taxation of long- term capital gains ( LTCG), it was also proposed that the holding period for gold be reduced from 36 months to 24 months. The rate for taxation of LTCGS on the precious metal, which was 20 per cent with indexation earlier, has also been lowered to 12.5 per cent without indexation.
Some analysts believe that the customs duty has been lowered to curb gold smuggling, which has picked up as prices of the yellow metal peaked in the recent past.
Duty cut impact
On the day of the Budget, gold prices fell nearly 5 per cent. The gold spot price on MCX fell to Rs 69,296 per 10 grams on July 23, compared to Rs 72,875 per 10 grams on July 22. Since then, gold prices have continued to hover below Rs 70,0 0 0 per 10 grams level. The cut in customs duty was a blessing in disguise as it brought back the demand for physical gold.
Outlook on gold prices
According to Anindya Banerjee, Senior Vice President and Head of Research ( Currency, Commodity & Interest Rates) Kotak Securities, the gold prices are likely to move towards 75,000 in the near future due to the uncertainty around elections in the US later this year.
“Gold and silver prices may trade firm for the second half of 2024. The key factor favouring the upside may be the rate cut from the US Fed and the weakness in the dollar. The strong economic stimulus from China may also boost investment demand for gold and silver,” said Tapan Patel, Fund Manager ( Commodities), Tata Asset Management.
Geopolitical factors like the US elections and Israel – Gaza conflicts are the additional factors which may keep risk premiums high in bullion prices. The longer pause in the US Federal Reserve policy, stronger dollar and bond yields may limit the upside in bullion prices, he said.
Cues for investors
Market experts believe that investors who are looking to invest in physical gold or ornaments, should look at gold- related instruments such as sovereign gold bonds ( SGBS) or gold exchange traded funds ( ETF). “If somebody wants to invest in gold as an investment class, gold ETF is a better option than buying physical gold,” said a gold market analyst.
In the case of SGBS, customs duty cuts may dampen demand for these bonds but it remains an attractive investment avenue as investors get a fixed rate of 2.5 per cent per annum, which is payable semi- annually, on the purchase value.