Should you be tempted to buy gold in India at a 10-month low?

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Gold prices have fallen in the Indian markets to a 10-month low of around Rs 29,000. On Wednesday, the precious metal slumped after the RBI eased restriction on imports. Check gold rates in your city here

With gold prices falling should you be tempted to buy gold at a 10-month low. Indian Bullion & Jewellers Association President Mohit Khamboj was recent quoted by PTI as saying "RBI's easing of 20:80 gold import norms is positive for the gems and jewellery industry. We expect this will be followed by reduction of the customs duty to 4-5 per cent from the current 10 per cent in the forthcoming Budget, resulting in declining of gold prices and (price) is likely to be at Rs. 23,000-24,000 by Diwali."

There is every reason to agree with Mr. Khamboj. First, as the current account deficit falls the government is likely to cut import duty on gold further. A sharp rise in the current account deficit last year, prompted the government to hike gold import duty rates to discourage gold imports. With the import duty likely to be reduced gold prices in the domestic market is likely to get cheaper.

Secondly, we import most of our gold requirements and the rupee is one of the important variables in determining the cost of the metal in the domestic market. It's likely that the rupee will continue to rise, thanks to a strong government and the likely reforms to be undertaken by the government. A strong rupee against the dollar means lower cost of gold.

Of course, all these assumptions are based on the fact that international prices of gold do not rally. Should international prices of gold rally, domestic prices would increase. However, for international prices to rally there has to be a major geo-political risk, which at the moment seems unlikely.

Clearly, there are chances that you could get gold at lower prices and hence you should not rush to buy.

Read more about: gold
Story first published: Saturday, May 24, 2014, 9:59 [IST]
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