Union Budget 2021- its a 10 on 10

Presenting the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced that the custom duty on gold and silver will be rationalised to bring them closer to previous levels.

Gold and silver presently attract a basic customs duty of 12.5 per cent. The custom duty on gold has been reduced from 12.5 to 7.5% which has pleasantly been beyond expectations. 

RSBL Gold dore bars and silver dore bars will attract customs duty of 6.9 and 6.1 per cent, respectively, as opposed to the existing rates of 11.85 per cent and 11 per cent respectively. These items will also attract Agriculture Infrastructure and Development Cess at the rate of 2.5 per cent.

While gold and silver will attract agriculture infrastructure and development cess at the rate of 2.5 per cent and social welfare surcharge of 10 per cent. Including the GST, the total tax on gold and silver would be around 13.75 per cent, which was at 15.50 per cent, earlier

Since the duty was raised from 10 per cent in July 2019, prices of precious metals have risen sharply. To bring it closer to previous levels, custom duty on gold and silver has been rationalised. 

As far as post budget reactions are concerned, gold prices plunged over Rs 2,100 on Monday after the Union Finance Minister Nirmala Sitharaman announced the changes in customs duty rate for precious metals. 

The reduction in duty has been warmly welcomed by the entire jewellery and bullion industry as it will result in an increase in physical demand for the yellow metal (which has been dampened due to the pandemic) and at the same time it will compress down illegal gold importing channels.

Further more , income tax assessment has been reduced from 6 years to three years. This will reduce the burden on the tax payers.

Analysts from RiddiSiddhi Bullions Limited feel that the government has given its best and introduced many good schemes, which will work in the favour of the Indian economy. Lot of money has been pumped in to the economy for revival and sustainability. We will witness a significant growth and developments in the form of infrastructure, jobs, industrial development.etc

The much awaited budget during the pandemic has lived up to the expectations as the government has tried from all sides to push economic growth and development.

For people at RSBL the budget is a sure shot 10/10 as players across the sectors has been quite satisfied with the new policies and its spill effect was seen on the equities markets as it rose high

Gold will benefit in the long run

Last year was very challenging for gold. At the same time it was a great platform for the yellow metal to once again prove its safe haven appeal. Investors jumped in to the market, shifted funds from other assets class to gold. There was significant portfolio diversification that was witnessed. While other assets were struggling to sustain, gold and other precious metals were taking complete advantage of the pandemic. 

Almost a year down the line and gold has a completely different story to tell. Gold seems to be losing its shine as it declines. While gold has reached its life time high of $2000 in August 2020, today it lies at $1850. 

Top gold dealers in India and across the globe are of the opinion that the massive stimulus packages and renewed animal spirits have seen its price fall. Some believe that this downfall will continue at least for the next 6 months owing to the following reasons-

US Dollar- dollar and gold are always inversely proportional. A strong dollar is bad for gold, since it makes the metal more expensive for those buying in other currencies. Better GDP growth and high US treasury yields will result in a strong dollar and a weakening gold. 

Risk Taking- there are many factors that will compel investors to increase their exposure to riskier assets at the expense of gold.

• Fiscal stimulus
• Monetary support
• Vaccination
• Positive growth and revenue

These all will lead to a shift in focus from gold to other assets.

Even though the above mentioned factors compel us to believe that gold will gradually lose its lustre, but we can’t forget the much known fact that gold has always remained consistent since ages. Precious yet durable, finite yet accessible enough to be traded, bullion of gold is worth roughly the same now as it has always been. It has time and again proven itself able to withstand volatility while other assets rise and fall.

Many investors and RSBL analysts still have faith in the yellow metal and believe that this downfall is just a bubble and gold will soon recover and cross new highs. Gold has been facing challenges but the larger picture seems to be different

Equities- Even if equities can continue their forward momentum, a rise in inflation looks increasingly likely. Inflation would be bad news for traditional asset classes (bonds in particular), but good for gold, which would see its value rise at the expense of the dollar’s. It would also be unaffected by any change in interest rates while shares could suffer.

Crypto currency- The value of crypto currencies is almost entirely speculative. That is to say, whereas an asset like gold finds value in its commercial and industrial uses, Bit coin’s lies solely in what people are willing to pay for it.

Risk taking- gold has always been used as a hedge tool against volatility. The basic appeal of being a safe haven asset has always been alive in gold. This means that even when risk appetites are highest, there is always a good case for holding at least part of a balanced portfolio in gold.

All in all, the noise in the market says that gold is here to stay and whatever be the global situations it will benefit gold in all forms.