Kotak Mahindra AMC’s MD and CEO, Nilesh Shah, has warned Finance Minister Nirmala Sitharaman of a potential surge in India’s gold import bill after the customs duty cut and rising international prices.
“”One early warning signal Madam, we (India) are importing about 700 tonnes of gold, which is (worth) about $35-40 billion. With the reduction in gold import duty, gold imports will rise,” Shah said at a CNBC-TV18 Open House, stressing that this could lead to a bloated gold import bill that may surpass even oil.
The Union Budget 2024’s surprise cut in gold customs duty triggered a dramatic market upheaval. Gold prices plummeted by over five percent in a single day, erasing around Rs 10.7 lakh crore in value. This unprecedented drop marked the sixth largest wealth erosion in Indian market history, surpassing the volatility often seen in equity markets.
Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said, “Gold prices witnessed a major setback due to pressure from Comex, as Comex Gold fell below $2,375, down from $2,409. Consequently, MCX Gold saw a sharp correction of Rs 1,100, settling at Rs 67,850. The pressure is attributed to ongoing profit booking, as the anticipated September rate cut had been priced in. However, there is a high possibility that it could be a one-time cut before a pause, especially with the upcoming US elections in November 2024. Gold will now take cues from the Fed’s policy review on 31 July.”
Gold prices on MCX have hit a three-month low of Rs 67,700, down from a high of Rs 74,700 on July 17, 2024. With the festive season approaching, gold prices may see an uptick, impacting overall returns from a long-term perspective.
Following the revised taxation treatment, the holding period for Gold ETFs is now 24 months.
Previously, gains from gold ETFs were added to income and taxed as per the income slab. Now, they will be taxed as per STCG and LTCG rates, which are 20% and 12.5%, respectively.