Union Budget 2019: Even as the gold is glittering brightest in five years, owing to trade war between the US and China as well as tension with Iran, in a surprising move India’s first women Finance Minister Nirmala Sitharaman has proposed a hike of 2.5 per cent in gold import duty, which would make women’s love for gold even more dearer, resulting into a lower demand.
The main reason that result into spike in gold prices is the global tension that China-the world's top gold producer and consumer-is facing the prospect of economic slowdown on account of tariff hike by US on Chinese imports. Apart from China, tension between the US and Iran is also adding to the uncertainty.
Apart from the global tension, another significant factor that created the demand pull is purchasing spree by central banks of various countries, and the trend has been revealed in the latest Q1 report by WGC, which showed that some central banks in Asia including China, India and Kazakhstan and from Europe such as Russia, Poland and Hungary have begun accumulating Gold.
While central banks are among the world's largest investors in gold, with total holdings of more than 30,000 tonnes as on February, 2019 according to WGC, China-the world's largest foreign exchange reserve holder and the world's second largest economy-has recently joined the global gold rush.
A Motilal Oswal report predicts that safety and liquidity remains priority for central banks that drive them to buy gold, because of its vital role in global financial system. Moreover, the rising concern of the dollar has added fuel to the gold rush.
As the gold was not performing well in last 5-6 years, the current price of gold is nowhere near its all time high level, which the yellow metal touched in international market in 2011. But in India, it has crossed the previous all time high peak it climbed in 2012.
With the high gold prices in the domestic market, it was expected that the import duty may be lowered to cool the prices.
"The hike in import duties was unexpected, as market was expecting a reduction in import duties. While the golds prices have touched new highs with Gold MCX August 2019 futures contract scaling beyond Rs 35,000 per 10 gram, we see physical demand for gold coming down due to high prices. However prices of gold will continue to remain firm," says Pritam Kumar Patnaik, Head Commodities, Reliance Commodities.