Following Finance Minister Nirmala Sitharaman's announcement in the Budget 2024 to reduce customs duties on gold, prices have seen a sharp decline of 7% or Rs 5,000 per 10 grams in local markets.
This price drop has caught the attention of both investors and buyers as the cut in customs duty has made gold imports less expensive.
Analysts believe this change will help tackle the issue of gold smuggling and boost the growth of the organised jewellery sector.
Jateen Trivedi, VP Research Analyst at LKP Securities, said that while the reduction might lead to some instability in market sentiment, it presents a favourable opportunity for retail investors due to the more attractive gold prices.
"While this can lead to weaker market sentiments due to the sudden change, retail investors stand to benefit from the new, more attractive pricing for gold," he told PTI.
Krishnan R, Director & CEO of Unimoni Financial Services, echoed this view, stating that the lower costs will likely encourage more people to invest in gold. Gold is often seen as a safeguard against inflation and currency devaluation.
Following the budget announcement, which cut basic customs duties on gold and silver from 15% to 6%, gold prices dropped significantly. In the national capital, gold prices fell by Rs 3,350 to Rs 72,300 per 10 grams on Tuesday.
The decline continued with a further drop of Rs 650 on Wednesday, and by Thursday, gold prices had fallen another Rs 1,000, settling at Rs 70,650 per 10 grams, according to the All India Sarafa Association.
In the past three sessions since July 23, gold prices have declined by Rs 5,000 per 10 grams, or 7.1%Jaipur Investment. Gold with 99.5% purity saw a drop of Rs 1,000 to Rs 70,300 per 10 grams on Thursday.
Silver prices also fell sharply, decreasing by Rs 3,500 per kg to Rs 84,000 per kg. In the past three sessions, silver prices have dropped by Rs 7,000 or 8.3%, from Rs 91,000 per kg.
The decrease in gold prices has led to a surge in demand for jewellery as consumers rush to take advantage of the lower prices.
PC Jeweller Managing Director Balram Garg told PTI that this reduction in duties is likely to boost sales for jewellers ahead of the festive season.
MP Ahammed, Chairman of Malabar Group, said that this reduction has been a long-standing request from traders in the gold sectorJaipur Investment. It is expected to address the issue of gold smuggling, which poses a significant challenge to the economy. The duty cut reduces the cost of importing one kilogram of gold from Rs 9.82 lakh to Rs 3.93 lakh, making smuggling less profitable and more manageable.
In futures trading on the Multi Commodity Exchange (MCX), gold futures partially recovered on Friday after three days of declines. The August contract rose by Rs 288 to Rs 67,750 per 10 grams. However, silver contracts for September delivery continued to fall, dropping Rs 241 to Rs 81,090 per kg.
Market experts suggest that gold prices may stabilise once there is more clarity on economic factors such as potential interest rate cuts by the US Federal Reserve.
"Gold prices fell to nearly a two-week low as investors praised the US economy's resiliency and reduced demand for conventional safe-haven assets, putting severe downward pressure on bullion prices and dragging them to their lowest level. The stronger-than-expected Advance US GDP data supported the impression that the economy was performing strongly," said Renisha Chainani, Head Research - Augmont - Gold For All.
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