5 reasons why gold prices would be soft under Modi govt

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Gold prices are likely to remain soft under the Narendra Modi led NDA, assuming that international gold prices do not rally. Here are 5 reasons why Indian gold prices would remain under pressure, unless sparked by global event risk, which pushes international prices higher. To check gold rates in your city click here

Appreciating rupee helps lower gold prices

The rupee has rallied from 60 levels to Rs 58.60 levels, making imported gold cheaper, since we import our gold requirements. This gets automatically reflected in domestic gold prices, which head lower each time the rupee gains against the dollar. The rupee is unlikely to depreciate sharply under a Narendra Modi led government.

Import duty on gold could be cut

With the current account deficit falling to manageable levels, it's likely that the 10 per cent import duty on gold could be withdrawn, given the fact that Narendra Modi has always stood for more liberalised measures. This could lead to a drop in cost of imported gold by as much as 10 per cent. The gold import duty was hiked last year to tame the current account deficit.

Gold import restictions may go

Enforcement Agencies seized 1,074.41 kg of gold during the first nine months of 2013-14 as against only 326.23 kg seized during the entire 2012-13 fiscal. Gold import restrictions have fuelled smuggling and the Narendra Modi govt may not want to encourage the same, cutting on the various other restrictions on gold imports, pushing prices lower.

Lower CAD to help gold prices

Current account deficit has slumped, which means it's possible that other restrictions on gold, including rules for importers to supply 20 per cent of purchases to jewelers for re-export could be done away with. This may have some impact on domestic gold prices. 

A drop in interntaional prices may benefit domestic prices

This point may not have anything to do with Narendra Modi, but, international prices are likely to fall given that there is a clear shift to equities from gold internationally. As economies around the globe continue to do well investors are likely to shun gold for equities. 

Read more about: gold, narendra modi
Story first published: Wednesday, May 21, 2014, 8:42 [IST]
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