Latest News Gold which has been glittering since last year, faced one of its blackest days on July 23, with erosion of mind-boggling Rs 1,07,40,00,00,00,000 or Rs 10.74 lakh crore investors' wealth. The reason? Finance Minister's custom duty announcement on gold and silvers for Union Budget FY25.
Indian retail stores saw 24K of 100 grams fall by Rs 29,900, emerging as one of the biggest single-day falls in 2024. Meanwhile, MCX gold futures with August expiry, nosedived by over 5%. Yellow metals since the start of the current year, have been leading by 4.
24% compared to the equity-laden benchmark Sensex. YTD, 24K gold prices jumped by 16% versus Sensex which gained by 11.4% before July 23.
But MCX gold futures with the expiry of August 2024, outperformed both gold in retail stores and Sensex, by surging about 18.2% YTD. However, this changed on July 23, making the current month one of the most bearish periods of 2024 so far.
On MCX, gold futures with an August 5th expiry date, nosedived by eye-bulging by 5.8% to Rs 68,510 on July 23, compared to the price of Rs 72,718 in the previous day. And the volatility has only continued further.
On July 26, the short covering of MCX gold stood at Rs 68,186. YTD, the gains have been squeezed to now 10.8%.
Gold prices in retail have now witnessed gains of 8% from January 1 to July 27. While Sensex has now outperformed the billions with a YTD upside of 12.54%.
The deterioration of wealth in gold on July 23 has been one of the worst to witnessed. Giving an example of the quantum of loss in the bullion, MoneyControl explained that if Indian houses held 30,000 tons of gold. The value of Indian gold as of July 22, 2024, would have been around Rs 218.
63 lakh crore, but after the mass panic selling on July 23, the value reduced by Rs 10.74 lakh crore taking the total to Rs 207.89 lakh crore after market hours on Budget Day.
The main reason for such frenzy destruction of gold was that traders did not appreciate the unexpected steep cut in customs duty on gold. Further, as per the report, gold financiers were also not pleased as the move would pull down the value of gold and further drag their loan-to-value (LTV) ratios lower. As per the Federal Bank website, Loan-to-value (LTV) is an important factor in determining the price of a gold loan.
It is a ratio involving the maximum loan amount that can be availed against the value of the gold being used as collateral. Further, it added, that the LTV ratio plays a huge role when it comes to fixing the price of gold loans. Lenders determine the interest rate and other charges based on the ratio and the higher the ratio value, the higher the interest rates and vice versa.
Hence, a lower LTV would lower interest rates on loans with gold as collateral. Who wins? The customs duty move is absolutely a win-win for Indian citizens as they are now able to buy their favourite gold at affordable prices. 24k/10 grams was at Rs 75,000 a week before Budget, which was quite expensive and had less room for buying.
This will further increase demand for gold too, especially ahead of the festive season. Gold prices are said to be critical in determining the LTV ratio which thus in turn effects gold loans. As per Federal Bank's website, when gold prices rise, lenders may offer a higher loan amount against the same quantity of gold, resulting in a higher LTV ratio.
Also, when gold prices fall, lenders may reduce the loan amount they are willing to offer or may decrease the LTV ratio. On July 23, Sitharaman announced that BCD/AIDC on gold and silver bars is reduced to 5/1% from 10/5%. Hence, the total tax rate on gold (inc.
3% GST) will now be 9% vs. 18% earlier. Rate cuts came into effect immediately.
Also, the holding period for the classification of gold (asset) held as either short-term or long-term has been reduced from 36 months to 24 months. Additionally, the finance minister announced a reduction in customs duty on gold and silver to 6% and platinum to 6.4%.
As per HDFC Securities, this will give a boost to jewellery consumption. Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities said post Budget that this cut caused a drop of about Rs 4,200, as prices fell from Rs 72,700 to Rs 68,500 on budget day, marking one of the biggest falls in rupee terms. The duty cut has aligned Indian gold prices with Comex prices by removing the premium.
Going forward, Comex gold movements will be crucial, especially as the rupee has stabilized with speculation subsiding. The broad trend in gold remains positive, although volatility is expected to continue. MCX explained on its website that gold, the most sought-after of all precious metals, is acquired throughout the world for its beauty, liquidity, investment qualities, and industrial properties.
As an investment vehicle, gold is typically viewed as a financial asset that maintains its value and purchasing power during inflationary periods. City-Wise Gold Prices On July 27: Gold Price Mumbai: 24k of 10 grams is at Rs 69,000, while 22K and 18K of the same gram is at Rs 63,250 and Rs 51,750 respectively. 24/100 grams is at Rs 6,90,000.
Gold Price Delhi: 10 grams is at Rs 69,150 in 24K, at Rs 63,400 in 22K, and at Rs 51,870 in 18K. 24k/100 grams is at Rs 6,91,500. Gold Price Kolkata: In this city, 24k of 10 grams is available at Rs 69,000, while 22K and 18K of the same is currently at Rs 63,250 and Rs 51,750 respectively.
24/100 grams is at Rs 6,90,000. Gold Price Chennai: Here, however, 10 grams is at Rs 70,530 in 24K, at Rs 64,650 in 22K and at Rs 52,960 in 18K. The highest gram aka 100 grams is at Rs 7,05,300 in 24K.
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