Pre budget Views 2022

 Lately we have seen that gold has been performing well in the international market. However o the contrary, gold prices have been trading at a discount in the domestic market. The reason being- strengthening rupee. Hence prices in the domestic markets gave not risen Vis a VI the international markets.

Bullion Market expectations regarding Budget 2022 are similar to the previous ones. Let’s take a look

Removal of restrictions on import and exports of gold- In the previous Budget 2021, the Finance Ministry had cut down the import duty to 7.5 per cent from 12.5 per cent. This was done to bring some boost to the gold industry.

This year too, the bullion industry wants further cut in the import duty in order to strengthen the market. Several distortions have been witnessed between the domestic and international markets and this reduction in duty will help to balance it out.

The market expectation is that the duty should be reduced from the current rate of 7.5 per cent to 4 per cent. However, if the government decides to impose GST (goods and services tax), such a rate cut would be nullified.

However, any further duty cut can be doubtful. This is because gold imports have risen largely, and any further rate cut would lead to more imports. According to statistics, gold imports in India have doubled in the first three quarters of this fiscal year, i.e. imports stood around $38 billion until December 2021.

Hence, if the government considers the import duty cut but imposes GST, the end price for the consumer will not change without affecting the demand.

Capital Gain - Besides, capital gain on gold is demanded to be rationalised to boost its investment. Long term capital gain on gold is taxable at 20 per cent (with the indexation benefit). Whereas the rate applicable on investment in shares is only 10 per cent if held beyond one year. The rate and holding period of gold investments are higher than the equity investments, making the latter a preferred investment option. Capital gain rates must be rationalised to consider investing in this precious metal.

Development of markets for physical and financial gold- There is a huge amount of accumulated wealth of gold in India. The government should try to use these savings for the development of the nation by mobilising and channelizing the same to productive uses.
Encouragement of banks and non-banks to participate in the gold market- currently, there are no designated bullion banks in the country. The entire business transaction of the gold industry with the bank needs to be done through the bullion bank. This makes banking inconvenient for stakeholders such as refiners and jewellers. For example, currently, if a jeweller wants to take a loan against his/her holding in the metal, he/she has to convert it into a rupee, make a deposit in a bank and take a loan against that. Or the jeweller/refiner will have to approach an international bullion bank for the same transaction. Instead, having a bullion bank would allow the jeweller to take a loan against the metal, making the process much easier.

The government has always been supportive and has tried to maintain a win- win for all. We all hope this budget works mutually well across industries.

The Overall Review of Gold In 2021

This year has brought us plenty of surprising, serious, and sometimes even challenging events. Some of them were mind-blowing. A plethora of events flooded the global markets, turning around tables for assets like bullion dealers in India across all classes. Gold, too, was not spared. Let’s have a look at how gold performed as a whole and what exactly were the main influencers that mattered for gold investors and traders -
 
Inflation - Unsurprisingly, inflation, supply chain issues, and the pandemic were all over the news throughout the year, with markets and investors ringing the alarm, and even the analysts were warning that all these issues won’t go away in 2022.

To round off the year, we collected the key events and news stories of 2021 to see how they affected the global market and physical gold buyers, and what they could mean for the year ahead.
 
Omicron – Though not as lethal as the delta variant, the Omicron virus swept the entire world in a jiffy. This fast-spreading variant has disrupted holidays and put infectious cases soaring.

Once again, restrictions were imposed, bidders were closed and the threat of a new strict lockdown was announced by many governments. This, once again, has put tourism and travel companies into a fix, running down their businesses. Investors sold off their shares in such companies.

As we said, though this variant is not as lethal, it still helped gold prices in rising high, appeasing many gold dealers in India. The mellow down that was set in by vaccination drives, was cut off by this new variant.
 
Inflation stops being “transitory” - That’s it. Fed chair Jerome Powell has finally admitted that this runaway inflation is not “transitory” after all. The U.S. central bank has been stubbornly repeating its “transitory” mantra almost all year long, ignoring the big elephant in the room. But when inflation hit a 30-year high and investors started ringing the alarm, it became too hard to deny it. So the Fed has come up with a new plan for 2022, which is to curb runaway inflation by gradually increasing interest rates. This, in turn, means that it might become more expensive for both businesses and consumers to take out a loan, which can discourage spending and reduce the supply of money in circulation. This is supposed to lower inflation and bring back a red-hot economy to safer growth levels.

But, according to Bloomberg Economics, if the Fed increases rates three times next year and signals it’ll keep going, the U.S. might be facing a recession in early 2023. Even in Europe, inflation soared 4.9%, which is the highest level since 1997. Unlike the Fed, ECB President Christine Lagarde said there will be no rate hikes next year, but also warned that the inflation might last longer than expected.
 
Supply chains - We faced a lot of things during the global lockdown -
volatile swings in consumer demand
Labour shortages
a giant container ship stuck in the Suez Canal

On top of that, the global chip shortage has slowed the production of a wide range of goods, from cars to smartphones, leading to a halt in the production of major industrial products.  
Any form of disruption results in negative growth in the economy. This is turn, increased gold prices, making the gold dealers in India and bullion dealers in India very happy.

China’s real estate bubble - Chinas economy and real estate sector sparked worries in the market, which had a spillover effect worldwide. The infamous Evergrande crisis was all over the news in the past few months as China’s sprawling real estate giant struggled to pay its massive $300 billion debt.

On December 10, Evergrande Group was declared by Fitch Ratings to be in default. This means that the company has formally defaulted, but had not yet entered into any kind of bankruptcy filing or another process that would stop its operations.

Investors fear that this could shake China's economy and hurt economic growth, which in turn would affect the world economy. This fear led investors to shift focus to gold, as time and again, the yellow metal has proved to be a haven asset in such uncertain times.

Summarising it, we can say that overall it was a decent year for gold. Gold prices remained lower in early 2021 due to the overbought level. However, prices recovered around 6000 rupees per 10 gram from the low level of 43300 due to high demand from the domestic Jewellery market. At the end of 2021, Gold prices are trading firmly above 48000 per 10 grams, which is, slightly down from December 2020. Continuing rising cases of Coronavirus variant Omicron and rising inflation may further support Gold prices for the year 2022. Energy and the prices of the other essential commodities are soaring again due to supply interruption increased due to pandemic, which may ask for safe-haven demand. We are expecting Gold prices to move towards higher in 2022.