Gold price rise: Will your yellow metal price cross Rs 36,000-mark? Find out

While a month ago, global scenarios were influencing gold price across India, a new factor has come into play this month. It is gold custom duty. Indian gold prices have already peaked to all-time high above Rs 35,000 across regions led by geopolitical tensions, dollar weakening and major central banks pinning down major rate cut hopes. The gold prices have never been better since 2016. While one hoped the gold price upswing to materialize by the next couple of months. Various factors including new ones are now pushing gold price above. However, a question still remains as to how far this yellow metal can go. 

Last week, gold prices inched up by Rs 930 to Rs 35,800 per 10 gram, just a couple of rupees away from touching a new all-time high of Rs 36,000-mark. It was seen as a positive trend overseas because make no mistake, gold is considered to be one of the best instruments for hedging funds. The rise in gold price this time was led by US Federal Reserve Chairman Jerome Powell who made it even more clear about possible rate cuts soon, prompting investors to park their money in safe haven assets. 

Following the news, gold prices have touched 1-week high. Spot gold grew by 0.3 per cent to 1,422.67 per ounce in intraday trade, which was the highest since the metal cracked $1,426-mark on July 03. Also, the yellow metal has surged by 1.5%  in the previous trading session. Meanwhile, the US gold futures swung up to 1,424.70 per ounce. 

Data by All India Sarafa Association reveals that gold with purity of 99.9 per cent and 99.5 per cent spurred by Rs 930 each to Rs 35,800 and Rs 35,630 respectively in 10 gram. Not only that, sovereign gold also soared by Rs 100 to Rs 27,400 for 8 grams. 

Earlier, CARE Rating in its research note said, “Gold did not see a particularly good rally in 2018. During 2018 the price had tended to also decline which was assumed to be the new normal for the metal. In fact, the price had breached the psychological mark of $1,200 per ounce mark in August. This was attributed to the growing strength of the dollar as the two variables are inversely related. A stronger dollar means that the price of gold in other currencies becomes dearer thus impacting demand. However, things have changed of late with the price crossing the $1400 mark and promises to head upwards given the underlying conditions.”

At present, 10 gram of gold in 22 karat is available at Rs 33,600 in Mumbai, Rs 33,850 in Delhi, Rs 34,140 in Kolkata and Rs 33,160 in Chennai. Today itself, these metro cities have seen rise between Rs 100 to Rs 250, except Mumbai in the gold prices, as per GoodReturns.com data. 

Similar is the case of 10-gram gold in 24 karat as it is priced at Rs 36,170 in Chennai, Rs 35,050 in Delhi, Rs 35,540 in Kolkata and Rs 34,600 in Mumbai. Gold prices here rose between Rs 150 to Rs 300 excluding Mumbai. Notably, the Indian financial hub still has lower gold price compared to other mentioned cities. 

While it was already expected that rate cuts from US front would mean more buyings in gold, but in India even custom duty will play a major role in impacting the valuation of this yellow metal. 

In her Budget 2019 speech, Finance Minister Nirmala Sitharaman proposed to hike gold custom duty to 12.5% from previous 10%. Surprisingly, this was the opposite of what gold sector had expected. Many even were deeply hoping for custom duty cut to 5%. But sadly, custom duty hike will play a major role in Indian gold price ahead. 

Here’s how does gold custom duty impact prices:

Kotak Securities in its research note said, “In Indirect Taxes, the FM has hardly built in 3% rise in Central GST collection. Due to rise in import duties on series of items, including gold the Customs Duty collection is expected to rise by 20% in FY20BE.” Following which, the note further added saying, “ Increase in duty may encourage smuggling. Further, increase in gold price could impact demand in the short term.”

While IIFL Securities expert in their research note said, “Custom duty on gold and silver increased, from 10% to 12.5%. This would push up domestic prices and may marginally weigh on volumes. Note that Titan typically charges making as a % of realisation and, hence, the impact is restricted to volume moderation, if any.”

Reliance Securities analysis says the government proposed to increase custom duty on gold and other precious metals from 10% to 12.5% as against the industry expectations of reduction in custom duty. Historically, Indian companies have successfully passed on the price hikes due to additional taxes in past. However, considering the current gold price which leads to Rs875-900 hike per 10gram is likely to impact demand scenario in the medium term. 

Hence, one can brace for further uptick in gold prices. Right now is not the time for buying, but one can always make profit booking in yellow metal.