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Budget 2019: Gold to cost more as govt proposes hike in customs duty

Chirag Madia
Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20,

Union Budget 2019: The Budget Proposal to hike customs duty on gold and other precious metals from 10% to 12.5% came as a surprise to the bullion industry and will lead to further rise in gold prices. Stocks of jewellery companies ended with losses on Friday.

Navneet Damani, vice president, Commodity and Currency Research at Motilal Oswal Financial Services, said, "Markets were expecting cut in customs duty, but the hike came as a surprise. Fiscal deficit is one of the reasons why there has been no cut in custom duty for the past few years." However, he added that gold is entering a bullish space and is already up this year and another 15-20% rally is expected in the next 12-18 months due to factors such as geo-political tensions and expectations of interest rate hike by the US Fed.

The gold spot price on MCX is `34,570 for 10 gm of gold. Since January, gold prices have surged by 9.6%. Market participants say the hike in customs duty will push up gold prices by `750 for 10 gm. Stocks of Titan, PC Jeweller and Tribhovandas Bhimji Zaveri were down in the range of 1-5% on Friday.

Chirag Mehta, senior fund manager -Alternative Investments, Quantum Mutual Fund, said: "Customs duty has become a major revenue-earner for the country and the dream of making India the gold-trading capital has been sacrificed for the sole purpose of filling the government coffers in a bid to reduce the deficit."

According to him, further increase in customs duty will only distort markets as the current differential between gold prices in India and the international gold price will widen by 2.5%-15.5%. "This is a significant differential and may augur well for illicit gold imports. Such interventionist policy making ensures that India will never be at the centre of the global gold market despite been the largest consumer and will continue to remain a price taker," he said.

Market players say that currently India's annual gold import is 650-750 tonnes.

"Spot gold in the international market held steady near $1415 an ounce as investors stayed away from taking fresh bets ahead of the key US employment data scheduled later in the day. There are expectations that the job data would offer more cues on the Fed's stance on interest rate cut," said Hareesh V, head – commodity research, Geojit Financial Services. "At the same time, domestic gold futures rallied by more than 2% due to the hike in
customs duty announced in the
Union Budget."