Gold price surges after import duty hike. Is this rise an opportunity to buy?
3 min read . Updated: 02 Jul 2022, 10:27 AM IST
Premium- Gold price ended higher in domestic market this week while it retraced in spot market in this period
Gold price today: After hike in import duty on gold from 7.50 per cent to 12.50 per cent, gold price witnessed sharp upside move on Multi Commodity Exchange (MCX) and in retail domestic markets. Recording ₹1,433 per 10 gm gain on Friday session, MCX gold rate ended at ₹51,950 levels whereas spot gold price ended $2.81 per ounce higher at $1810.10 per ounce. So, the precious metal ended higher in domestic market this week while it retraced in the spot market in this period. In fact, gold price has logged 6.74 per cent dip in Q1FY23.
According to bullion experts, gold price is holding well over the key support of ₹50,600 on MCX and $1770 in spot market. They said that till these support levels in the respective markets are intact, every dip should be seen as buying opportunity by precious metal investors.
On immediate short term reason for gold price rally, Sugandha Sachdeva, Vice President — Commodity & Currency Research at Religare Broking Ltd said, "Gold prices remained trapped in a range this week, wherein there was a divergence in domestic and international gold prices. The precious metal witnessed a decline in the international markets, while it gained significantly in the domestic markets amid rupee depreciation towards record lows and a surprise move by the government to raise import duty on gold by 5 per cent. Rising gold imports are causing a strain on the CAD and pushing the Indian rupee on a downwards trajectory. So, in an attempt to curb the rising gold imports and bring down the trade deficit, the government has hiked the import duty on gold, which will make it expensive and likely dampen domestic demand."
Gold price outlook
Asked about gold price outlook, the Religare expert said, "Looking ahead, the price outlook for gold is shaky in the short term as the tightening of global financial conditions is restricting the upside in the precious metal while looming recession risks are propelling safe-haven demand for gold on the other hand. Besides, energy and other commodity prices have drifted lower during the week, easing inflation expectations to a certain extent and giving a sense that the worst may be over for the rising inflation trajectory. In terms of key data, the US economy contracted at an annualized rate of 1.6 per cent in the first quarter, after growing at a 6.9 per cent pace in the fourth quarter of 2021 adding to fears about recession, while underpinning gold prices to a large extent."
On important levels in regard to gold price in domestic and spot markets, Anuj Gupta, Vice President — Research at IIFL Securities said, "Spot gold price has been able to hold above its major support placed at $1770 per ounce. Spot gold price today is in the range of $1770 to $1835 range. On breakage of this minor hurdle place at $1835 levels, next target of spot gold would be $1865 and $1900 in short to medium term. As spot gold price has taken strong support at $1770 levels, every dip in the range of $1790 to $1800 levels should be seen as buying opportunity by gold investors."
Investment strategy
Anuj Gupta of IIFL Securities maintained that short term trend for gold is 'sideways with positive bias' and hence one should avoid taking short position in gold and try maintain 'buy on dips' strategy in near short term.
"On MCX, gold price has immediate support placed at ₹51,200 levels whereas its major support on the Indian bourse is placed at ₹50,600 per 10 gm levels. On the upper side, MCX gold price is facing immediate resistance at ₹52,500 and ₹53,100 respectively," said Anuj Gupta of IIFL Securities.
Tax hike on gold import
In an attempt to stem the steep decline in rupee and curb the widening trade deficit, which has soared to record highs of $23.33 billion in May amid rising import bills, the Government of India has (GoI) raised the import duty on gold by 5 per cent in a surprise move.
“Rise in import duty on gold makes the import duty on gold 12.50 per cent now, while the effective duty on gold will be 15 per cent, including the 2.5 per cent Agri Cess, as social welfare surcharge of 0.75 per cent has been exempted. In all, the net duty change will be 4.25 per cent. Gold also attracts additional 3 per cent GST, which means the total levies on gold will be 18.45 per cent," concluded Sugandha Sachdeva of Religare Broking.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
