Comments on Gold Duty Hike of RBI!

          - Mr. Prithviraj Kothari (MD, RSBL:RiddiSiddhi Bullions Ltd.)

                

          

Finance Minister is back with a new change in Gold policy, announcing another attempt to curb Gold imports by increasing the import duty from 6% to 8% with immediate effect, will have a loud impact on the Bullion sector. Increase of 2% at current rate of $1400 per ounce is 28 USD per ounce. To be clear, with this duty hike a difference of 9.24 percent between the international and domestic price of the yellow metal is evident.

The headline should however have had a negative psychological impact and it is surprising that Gold wasn’t sold harder yesterday, which might again point to the fact that traders are now cautious on the next set of US data.

Taxes included in the price is 8.24% Customs Duty + taxes(Educational Cess etc) + 1% VAT = 9.24% while  1% TCS is applicable on Cash Sale, will incentivize a rise in illegal channels and malicious activities with respect to importing gold and related products like jewellery etc., in the country. To give you a snapshot, 1 kilo of smuggled Gold into India, where the bar has a size smaller than a Samsung S4 (approx), would yield approx 4160 USD i.e. INR 2,37,000 (approx as per current rate of 1 USD = INR 57), or 3 times a yearly income per capita [GDP (nominal) - 2012 estimate  - Total $1.947 trillion (10th), Per capita - $1,592 (140th), Source: http://en.wikipedia.org/wiki/India]. Every Indian going on a holiday abroad might be tempted to carry some Gold back (in prescribed limits as per Government norms), as the tax saving could help paying part of the trip. While 1 kilo of Gold is not affordable to most of Indians, organized illegal channels could finance porters and collect the Gold at their return to the country.

In turn it will lead to an increase in unemployment among the skilled artisans of the country (around 1-2 million people depend on this sector to earn their livelihood) as well the businesses of local jewelers across the country. The government should harness the existing reserve of gold in our country rather than turning towards imports and implementing this alarming hike on customs duty. Also other opportunities for revenue generation, like increasing exports should be explored by the government of India. Hiking the duty on imports will in no way, curtail the absolute demand (can reduce it), as the precious metal has always been regarded as one of the best investment options for social security.


"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

- Previous Blog:
"See Saw Yet Again" :
 http://riddisiddhibullionsltd.blogspot.in/2013/06/see-sawyet-again.html

SEE SAW.....YET AGAIN!

                - Mr. Prithviraj Kothari (MD, RSBL:RiddiSiddhi Bullions Ltd.)

There were mixed or rather confused sentiments in the precious metals market as we saw gold rising consecutively for 3 days till Thursday but again dropping almost 1.6 per cent on Friday (its biggest one day loss in two weeks)

The prices of precious metals changed direction and bounced back on Tuesday. Their recovery coincided with the decline in equity markets and the rally of leading risk related currencies such as Euro and Aussie dollar

The main reason for gold recovery till Thursday was the US Economic Data that was released. There was an unexpected Increase in the jobless claims and higher pending home sales too increased less than expected. Jobless claims rose by 10k to reach 354k during the previous week and the US GDP for the first quarter of 2013 expanded by 2.4 per cent - which disappointed many as it was slightly lower than the previous estimate. It gave signals that its recovery is still not too close. This boosted the prospects that The Federal Reserve will not pull back its monetary stimulus plan

Prolonged accommodative monetary policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets. The little to no improvement in the U.S economy according to these reports may have contributed to the depreciation of the USD against leading currencies and the rally of precious metals

Gold was up 1.98%, thus trading at 1417.81 an ounce post the data release on Thursday. The yellow metal remains supported by weak US GDP numbers and positive Asian growth numbers.

However, Friday being the last day of the month we saw selling pressure in the markets.

A few data was released on Friday too. There was again optimism created in the market as regards the recovery of the US economy. Some stronger-than-expected U.S. economic data released Friday morning has boosted the U.S. dollar index and in turn put selling pressure into the gold market. US Data released on Friday showed low inflation and improving consumer confidence. This dampened investor interest, thus dropping bullion prices.

Bullions marked sharp losses for a second consecutive month as we has also witnessed the great gold crash in April

Moreover, there was no sell off seen in ETF's on Friday. Holdings in the SDPR Gold Trust remain unchanged at 1013.15 tonnes on Thursday, after rising for the first time in three weeks on Wednesday

As we are exiting May, volatility of precious metals is expected to rise as gold and silver contracts are expiring.

Gold support is at $1,390 and $1,373. Resistance is at $1,427 and $1,440. Silver support is at $22.20 and $21.80, resistance is at $23.10 and $23.54.


"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

- Previous Blog-
"Fed's Policy Statement- Predictable I feel?" :
 http://riddisiddhibullionsltd.blogspot.in/2013/05/feds-policy-statements-predictable-i.html