With speculation swirling around a potential hike in the customs duty on gold in the Union Budget 2025, many are wondering whether it’s a good time to invest in gold ahead of this announcement. Experts suggest that buying gold during price dips could be a tactical move, particularly if the government increases customs duties, which may drive up domestic prices.
Background: Customs Duty Reduction and Increased Imports
In the FY25 Budget, presented on July 23, 2024, the government made a significant move by reducing the customs duty on gold and silver bars from 15% to 6%. This reduction led to a surge in gold imports, which increased by approximately 104% year-on-year in August 2024, reaching $10.06 billion. However, this increase in imports also raised concerns about the trade deficit, as India heavily relies on gold imports to meet its demand, being the world’s second-largest consumer of gold.
In response to this surge, experts believe that the government may reverse course and consider raising the customs duty on gold in Budget 2025. The rationale behind this is to curb rising imports and stabilize the trade deficit, which increased due to higher gold consumption. Sugandha Sachdeva, founder of SS WealthStreet, believes that an increase in customs duty would likely raise the landed cost of gold, which in turn would drive up domestic gold prices. This could make buying gold at current prices an attractive opportunity for investors looking to profit from potential price hikes.
Market Insights and Gold Price Trends
Despite the strengthening of the US dollar, gold prices have seen an increase recently, supported by healthy demand from the spot market and weakness in the domestic equity market. In the last week, MCX gold rates saw a gain of around 0.8%, closing at ₹79,019 per 10 grams. This uptick in prices could continue if the government decides to increase the customs duty on gold, sparking fresh demand in the domestic market.
As Sachdeva points out, India spent $47 billion on gold imports during the first 11 months of 2024, a significant rise compared to $42.30 billion in the entire 2023. This surge is a primary factor driving speculation that the government may raise the duty in Budget 2025 to manage rising imports.
Other Factors Driving Gold Prices
However, customs duty hikes are not the only factor influencing gold prices. The global economic landscape also plays a crucial role in shaping the demand for gold. In particular, global uncertainty—ranging from geopolitical tensions to policy shifts under **US President Donald Trump’s second term—could enhance gold’s appeal as a safe-haven asset. Additionally, market participants are watching closely for updates from the US Federal Reserve, particularly regarding potential interest rate cuts, which could also bolster the appeal of gold as an investment.
Even if the customs duty remains unchanged, gold prices may continue to rise, driven by these global factors. According to Sachdeva, gold prices are currently supported by a key support level of ₹76,000 per 10 grams, and if prices breach the ₹79,200 resistance level, they could test new record highs. On the other hand, a failure to break this resistance could lead to a downward correction.
What Should Investors Do?
As Anuj Gupta, head of commodity and currency at HDFC Securities, suggests, gold prices will be influenced by both the Trump administration’s outlook and the Union Budget 2025. There is a possibility of significant movement in the MCX gold rates depending on whether the customs duty is increased, with potential spikes in gold prices. Therefore, any dip in gold prices ahead of the Union Budget should be viewed as a buying opportunity for investors who are looking to capitalize on future price increases.
In conclusion, if you are considering buying gold, it might be wise to do so before the Union Budget 2025, particularly if prices dip. A potential customs duty hike could push prices higher, making gold an attractive investment in the short term. However, broader global economic factors will also play a significant role in shaping the gold market, so keeping an eye on both domestic and international trends is crucial.
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