Gold Rate Today: Why India Can't Afford Weak Gold Prices for Long? — Explained
15/07/2024
Gold price today: After losing around 9 percent from the July 17, 2024 high, the gold price on the Multi Commodity Exchange witnessed some value buying at lower levels on Thursday, which continued for the next two sessions. The MCX gold rate today opened with a gap to the upside at ₹68,426 per 10 gm and touched an intraday high of ₹68,534 per 10 gm within minutes of the commodity market opening. According to commodity market experts, gold prices are rising today for two reasons: cooling US inflation and excitement over the US Fed rate cut at its upcoming September meeting.
According to stock market experts, a rise in gold prices today is good news for the Indian economy as we cannot afford weakness in gold prices for long. They said that the Indian government had already reduced customs duties on gold and silver, triggering the heavy sell-off of the precious metals. If global triggers continued to remain weak, the chances of more gold imports would hit the nation’s dollar reserves. So, in that case, the Reserve Bank of India (RBI) had to step in by releasing part of its gold reserves to control inflation. They said that cheaper gold could become another crude oil for the national economy.
Why is the cooling of the gold price dangerous?
On why the rise in gold prices today is good news for the domestic economy, Anuj Gupta, head of commodities and currencies at HDFC Securities, said, "Following the announcement of a reduction in customs duties on gold and silver, the precious metal witnessed heavy selling in India as the domestic market was adjusting to the new effective tariffs after it was announced that customs duties would be reduced from 15 per cent to 6 per cent. Global indicators were also weak due to weak demand from the Chinese physical gold market. Hence, gold prices in India have tumbled around 9 per cent while they have plunged around 4.5 per cent in the international market from the July 17, 2024, high. However, we have seen some value buying in gold in the last three sessions, which should provide some relief to the RBI as a sharp correction in gold prices is expected to fuel gold imports."
On how gold imports would affect the Indian economy, Anuj Gupta of HDFC Securities said, "Rising gold imports would fuel the rate of US dollar outflows, which would put pressure on the Indian national rupee (INR). Indian dollar reserves would also come under pressure due to rising gold imports. The RBI cannot afford to let gold prices remain weak for longer, as in such a scenario, gold would become another crude oil for India. To avoid such a situation, the RBI will either have to dip into its gold reserves to reduce gold imports or target the next series of Sovereign Gold Bonds."
Echoing Anuj Gupta’s views, Amit Goel, co-founder and chief global strategist at Pace 360, said, “Increased gold imports could lead to a higher outflow of foreign exchange (dollars) as gold is internationally priced in dollars. If the import volume increases substantially, it could strain the country’s foreign exchange reserves and impact the rupee. While lowering gold taxes could lead to increased imports, it can also be seen as a strategy to curb illegal smuggling and increase legal trade.”
On how the RBI will have to intervene to contain cheaper gold, which would become the next crude oil for the domestic economy, Vaibhav Shah, Fund Manager at Torus Oro PMS, said, "With the duty cut, the intent is to import gold through official channels. While gold leads to an outflow of foreign exchange, the RBI has also increased its gold reserves in the last few quarters. So, if a surge in imports leads to a threat, the RBI can always provide the required supply. The current strength in gold prices can also be attributed to record buying by central banks across the world in the last few quarters."
Disclaimer: The opinions and recommendations above are those of individual analysts or brokerage firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
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