Gold prices for August futures have fallen by Rs 3,500 per 10 gm in the last seven trading sessions following the customs duty cuts announced by the government in the Union Budget. The precious metal is currently trading at Rs 69,213/10 gm.
Domestic gold prices plunged drastically to Rs 67,400/10 gm — the lowest since the end of March — following a sharp cut in import duties coupled with concerns over Chinese demand.
The government has slashed customs duties on gold and silver by 6%. The basic customs duty has been reduced to 5% from 10%, and the Agriculture Infrastructure and Development Cess lowered to 1% from 5%. This decision will effectively bring down the overall taxes on gold and silver in the country to 9% from an earlier 18.5% inclusive of GST.
“The domestic yellow metal MCX gold traded in a tight range and closed with a formation of small positive candle on the daily chart,” said S Devarajan, Head of Technical & Derivatives Research at Way2Wealth Broker
Based on the technical performance, Devarajan believes that in the near term, consolidation may continue for gold.Additionally, a better-than-expected US second-quarter GDP and jobless claims data exerted downward pressure on gold and silver prices. However, hopes of a U.S. Federal Reserve rate cut and short covering provided support at lower levels, Rahul Kalantri, VP Commodities, Mehta Equities.Now, investors await the US Fed’s meeting, scheduled later in the day according to Indian standard time (IST). Lower interest rates tend to be positive for gold because it doesn’t earn interest, making it more attractive compared to other investments.“The Fed is expected to keep its benchmark rate in the range of 5.25% to 5.5%, but markets are keenly awaiting the FOMC statement, as policymakers are likely to set the stage for a rate cut in September,” said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.
The cut in customs duty is a long-standing demand from the stakeholders. The Government of India has been hiking customs duties on gold for decades to curb its imports which was one of the major reasons for widening the current account deficit. However, cutting duties would lead to lower input costs, cut down on gold smuggling, stimulate domestic manufacturing and boost export competitiveness.
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