Recently pronounced Union Budget 2024-25 announced duty cuts on gold import. In the context, Kavita Chacko, Research Head, India-World Gold Council eye on the implications for the gold market! The reduction in customs duty has the potential to measurably increase demand both during the upcoming buying season (between August and December) and over the longer term.
In the past, when the import duty was raised in 2012, it created headwinds for jewelry demand but its effect was even more noticeable in the bar and coin market. Our econometric model suggests that Indian consumer demand – the sum of jewellery and bar and coin demand – could see an additional 50t or more in the second half of 2024 through a combination of an initial boost in consumer appetite given the more attractive price as well as a longer-term effect as local prices aligns more closely with the international price.
Anecdotal reports also suggest that the revised definition of Specified Mutual Funds, which excludes gold ETFs from debt and money market securities is likely to improve flows into gold ETFs. It is anticipated that the reduction in duty and the shortening of the long-term investment qualifying time period will make the investment landscape for gold-ETFs more equitable and attractive.
This will likely give further impetus to flows into these funds which have been witnessing steady net inflow since April 2013.
Overall, while there may be some short-term mitigating factors such as the price paid for existing inventories, or the still elevated gold price, we believe that the reduction in customs duty combined with the more beneficial long-term capital gains treatment for gold funds, could be an important catalyst for long term Indian gold demand.
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